Wall St M&A fees seen dropping 20 percent in 2008
NEW YORK (Reuters) - Wall Street's fees for brokering mergers and acquisitions are likely to drop about 20 percent this year, reflecting a weaker economy and the difficulty of financing for leveraged buyouts, Sanford Bernstein analyst Brad Hintz said on Thursday.
"Merger and acquisition activity has historically been correlated with favorable economic conditions," Hintz said in a research report. The most recent boom in M&A also was driven by several years of cheap and easy debt, which allowed leveraged buyout firms to pursue deals of an unprecedented scale.
But by the end of 2007, investors withdrew from debt markets and left banks holding a huge inventory of unsold loans and bonds. Hintz estimates that some $160 billion of deal debt has yet to be sold.
"The overhang of unplaced debt from 2007 transaction volumes, wider credit spreads and more conservative lending policies will limit announced 2008 global financial sponsor M&A activity," he said.
More specifically, Hintz said, U.S. and European LBO activity will drop 30 percent in 2008 and by an additional 22 percent next year.
The sea change in capital markets last summer, in which investors demanded higher yields and more protections, has hindered the ability of LBO shops to pursue megadeals. The overall volume of deals announced in September and October fell to three-year lows, Hintz said.
"Strategic" M&A, or deals between companies, will also decline, but at a slower pace since they are less dependent on debt financing. Hintz sees volume declines of 4 percent in Europe and 10 percent in the United States this year.
M&A fees reached record highs last year, but deals announced earlier in 2007 are closing and are not being replaced at the same pace. Slower M&A activity, and a shrinking backlog of pending fees, will continue into 2008, Hintz said.
"The trend lines of several Wall Street's institutional businesses are beginning to point south," he said.
(Reporting by Joseph A. Giannone; Editing by Lisa Von Ahn)
