August merger market slowest in 16 years

By Jessica Hall

PHILADELPHIA (Reuters) - The merger market is suffering the worst "dog days of summer" in 16 years.

While merger volume traditionally slows in August as Wall Street investment bankers escape to the Hamptons, this year's U.S. deal volume is on pace to be the slowest August since 1992, according to data from Thomson Reuters.

With credit markets tight since last year's subprime credit fallout, borrowing money to finance deals over $5 billion has been difficult and private equity funds have been forced to the sidelines.

Meanwhile, the 13-percent drop in the Dow Jones industrials average this year has made it risky for corporations to negotiate deals with fluctuating stock currencies.

Deal volume in the U.S. has totaled $28.5 billion so far this month. That's 53 percent below volume for all of August 2007, when the credit crisis began to clamp down on deal activity.

This month's U.S. deal volume so far is the lowest for any August since 1992, when volume was $9.4 billion, according to Thomson Reuters.

"As long as p/e (private equity) is out of the game and strategics can't get their stocks to stay steady long enough to value deals, and as long as the financial institutions are having difficulties of their own, it's hard to get money to get deals done," said one merger adviser who declined to be named.

So far this year, U.S. merger volume has totaled about $804 billion, compared with about $1.2 trillion a year ago, according to Thomson Reuters.

The few highlights in U.S. mergers so far this month included Mitsubishi UFJ Financial Group's (8306.T) sweetened $3.5 billion bid for full control of UnionBanCal Corp UB.N and Russian steel producer Novolipetsk Steel's (NLMK.MM) (NLMKq.L) $3.5 billion deal to buy U.S. steel firm John Maneely Co.

Of course, not all Augusts are this slow.

The busiest August on record in the U.S. was in 1998, when volume reached $154.9 billion. That month got a boost from BP Plc's (BP.L) $52.7 billion acquisition of Amoco and American International Group Inc's (AIG.N) $18.1 billion acquisition of SunAmerica.

CRISIS MENTALITY

As the subprime credit crisis exploded in July 2007, bankers abandoned vacations and scrambled to keep deals from falling apart. This summer lacks that crisis mentality -- but it also lacks deal activity as the stock and bond markets remain shaky, investment bankers said.

Billionaire investor Warren Buffett said on Friday the U.S. economy is still in a recession and unlikely to improve before 2009. Still, he said stocks appear better valued than a year ago.

The uncertainty around investment banks themselves has made it difficult to get financing for deals, merger advisers said.