* Global M&A volumes down 44 pct in Q1 2012 y/y
* Materials, energy and power accounted for 38 pct of
* Dealmakers expect recovery as deal pipeline builds
* IPO market expected to show more activity in Q2
By Greg Roumeliotis
March 23 Mergers and acquisitions activity hit
its lowest quarterly level in more than seven years in the first
quarter of this year, but investment bankers said a run-up in
the markets will help turn the tide.
Global volumes of announced M&A deals dropped to $416
billion in the first quarter of 2012 from $737 billion a year
ago, according to preliminary Thomson Reuters data, as the euro
zone's debt crisis and concerns over economic growth around the
world took their toll.
JPMorgan Chase & Co rose to the top from the No.5
spot, knocking Goldman Sachs Group Inc down to second in
the worldwide M&A advisory league tables, with Citigroup Inc
up one spot to third.
Financial markets made a strong come back in the first
quarter of this year and M&A professionals said deals would
follow, pointing to a lead time between the improving financing
conditions and the signing of deals.
"There's a growing view that the U.S. economy is
strengthening and that the crisis in Europe has passed, although
it will take a while to sort out," said Jonathan Rouner, Nomura
Securities' head of M&A for the Americas.
World stocks measured by the MSCI All-Country World Index
are up 11.4 percent year-to-date, benchmark
10-year U.S. treasuries yielded below 2 percent for
most of the first quarter, while central banks globally
continued to flood the financial system with cheap money.
"As we move into this summer and fall, you should be seeing
deal activity at a better level. There is just a general, better
sense of confidence," said Steven Koch, vice chair and co-chair
of Credit Suisse Group AG's M&A team.
Declines in M&A activity in every major region contributed
to low global volumes in the first quarter of 2012, which
slumped to their lowest since the third quarter of 2004.
U.S. M&A in the first three months of 2012 was down 60
percent from the same period in 2011, European M&A was down 33
percent and Asia-Pacific M&A was down 42 percent, demonstrating
how deal flow even in fast-grow emerging markets is impacted by
global economic uncertainty.
At $127 billion, M&A volumes in the United States came in
lower in the first quarter than in debt-stricken Europe, which
counted $137 billion in M&A activity.
"If you're on the board of a global company contemplating a
large M&A transaction, you're going to be hesitant given the
uncertainty outlook for the global economy, and the European
economy in particular," Nomura's Rouner said.
Cross-border M&A totaled $152 billion in the first quarter
of 2012, accounting for 37 percent of worldwide deals, down from
$237 billion in the first quarter of 2011, when it accounted for
HUNT FOR RESOURCES
The materials, energy and power sectors together accounted
for 38 percent of global M&A volumes as companies sought to
boost their footprint in their patch amid a commodities boom and
rising energy prices.
With an enterprise value of $49 billion, the merger of
commodities trader Glencore International Plc and
mining group Xstrata Plc dominated the resources sector
and accounted for more a tenth of the global volume.
"The simple fact is that globalization and growth in a
variety of emerging economies have fueled the commodities
markets for several years running now. We expect to continue to
see meaningful activity in any commodity-based sector," said
Credit Suisse's Koch.
Despite expectations that the capital needs of banks will
lead to a wave of M&A opportunities, financials fared the worst,
falling 71 percent year-on-year, as financial institutions held
back from selling at knock-down prices.
"Energy will continue to be active, and healthcare is going
to become more active. By the second half, I think the M&A
dynamic will be more widespread. I don't think it will be
isolated to a particular sector," said Jim Woolery, co-head of
North American M&A at JPMorgan.
Global private equity-backed M&A came in at $43.9 billion in
the first quarter of 2012, down by a quarter year-on-year.
Dealmakers expect volumes to rise as buyout firms take advantage
of improved financial markets to exit investments as well as buy
unloved businesses from companies reviewing their strategies.
"It takes a little while to get the pipeline going and then
it starts moving through at some velocity. I think we could see
a pretty good second half (of 2012)," said Jeff Bunder, global
private equity head at Ernst & Young Transaction Advisory
A large number of companies, including private equity
portfolio firms, are also expected to tap the public markets.
Bankers predict a rise in activity during the second quarter
as after-market performance remains strong and the VIX -- a
gauge of stock market volatility -- hovers at five-year lows.
"This year, issuance was slow out of the box in January
resulting in fewer IPOs than we would have normally seen. Now
that the market is creeping up, we expect to see greater
activity in the second quarter," said Frank Maturo, head of
Americas Cash Equity Capital Markets at Bank of America Merrill
The expected recovery in deals, however, could still be
scuppered by a major geopolitical or macroeconomic event, such
as a confrontation with Iran or soaring oil prices.
But barring such shock to the markets, dealmakers are
optimistic about 2012.
"What we felt at the beginning of the year was really a
reflection of the low level we all saw in October. This air
pocket in the M&A market was predicted and expected because of
the pipeline effect around Europe," said JPMorgan's Woolery.
"(M&A activity) will build, but it's not going to turn in a
dramatic way. That's just a function of the time it takes to put
deals together," he said.