M&A seen on the brink after record 2007
PARIS (Reuters) - The mergers and acquisitions outlook is poised on a knife-edge as bankers wait to see if 2008 sees a recession and slump in stock markets as a fall in M&A activity in the second half of 2007 overshadows a record year.
Difficulties for buyout firms financing large acquisitions and uncertainty about the economic outlook contributed to global M&A falling by 27 percent year-on-year in the second half of 2007, according to preliminary data from Thomson Financial.
Bankers expect a reduction in M&A in 2008 compared to 2007, but the question is how big. A global recession next year in Europe and the U.S., especially if it is accompanied by a fall in stock markets, could exacerbate the slowdown in deal activity.
"A lot depends on whether there is a recession next year," said Gavin MacDonald, global head of M&A at Morgan Stanley, which topped Europe's M&A advisory rankings for 2007.
Overall 2007 was, despite the second-half slowdown, the second consecutive record year for M&A, as a bumper crop of first-half deals led by consolidation in the financial services and natural resources sectors pushed overall volumes up by more than a fifth to $4.4 trillion.
Royal Bank of Scotland, Santander and Fortis's $99 billion three-way acquisition of Dutch bank ABN AMRO, and miner BHP Billiton's $193 billion -- including debt assumed -- offer for rival Rio Tinto were the biggest deals of 2007, helping to make it the most active year ever for M&A.
"On a global basis 2007 will be hard to beat for a while," said Henrik Aslaksen, co-Head of European M&A at Deutsche Bank.
Among the biggest deals in the much slower second half were the BHP bid and Rio Tinto's acquisition of rival Alcan.
But a lot depends on the economy, as it affects the confidence of executives and senior management at companies in undertaking large deals.
"If the consumer slows down, there is every possibility things may slow up," said Tom Willett, joint head of European M&A and head of UK M&A at ABN AMRO. "When the economy is tougher CEOs are slightly more on the back foot and one of the key determinants of M&A activity is CEO confidence."
If markets stay robust and Western economies avoid a severe recession then bankers expect M&A in 2008 to be a little weaker than it was in 2007 but they see a slight fall in volumes rather than a cataclysmic seizure in deal activity.
"I think we will see a slight reduction in M&A volumes in Europe next year, as opposed to a significant change," said Hernan Cristerna, co-head of European M&A at JP Morgan.
But credit markets have tightened for bidders, especially the buyout firms whose huge rise in M&A activity in recent years had helped bring about the recent M&A boom.
Tighter credit and fears of an economic slowdown have already spelt the death knell for several other potential deals, including Qatar-backed Delta Two's acquisition of UK grocer J Sainsbury Plc in what would have been a $20 billion deal.
Buyouts fell by 54 percent in the second half of 2007 year-on-year, largely as a result of credit markets, and bankers do not expect a quick recovery. In Europe, the 12.7 percent of M&A activity they accounted for in 2007 was a six-year low. Continued...
