LONDON Global mergers and acquisitions (M&A) plunged by a third in the first quarter to $444 billion, as the financial crisis thwarted dealmaking and all but silenced the private equity houses behind many boom-era takeovers.
Announced M&A had its slowest first quarter in six years, according to Thomson Reuters data released on Friday.
That was despite several bank bailouts, and two U.S. drug industry tie-ups together worth $110 billion -- or a quarter of all deals by dollar value.
Bankers said the tough conditions would endure until credit markets became more welcoming, shares stabilized, and the economic picture brightened, allowing acquirers to forecast earnings with more certainty.
"There's a lack of confidence in valuations, and a lack of credit," said Ian Hart at Citigroup (C.N), which advised clients including Pfizer, Lloyds, Essent NV, and the UK Treasury on several of the year's biggest deals.
"Executives are very cautious and are focused on seeing their businesses make it through the downturn," said Hart, Citi's co-head of European M&A.
"There will come a time when people feel it's the right time to move but they don't feel any need to hurry."
David Livingstone at Credit Suisse, which ranked top for European M&A, said M&A remained highly dependent on the economic outlook.
"There's less overall confidence in making strategic moves, and continued dislocation in credit markets. We'd anticipate this situation will broadly continue through the rest of the year," he said.
The two biggest deals, Pfizer Inc's (PFE.N) $64.5 billion purchase of Wyeth WYE.N, and Merck & Co Inc's (MRK.N) $45.9 billion move on Schering Plough Corp SGP.N, gave healthcare its busiest quarter in a decade, although bankers doubt more mega-mergers will follow.
The financial services sector was also busy, with the British Treasury's $22.3 billion bailout of Lloyds Banking Group Plc (LLOY.L) the quarter's third-biggest single deal.
British support for Royal Bank of Scotland (RBS.L), which the data accounts for in several tranches, made up another four of the top ten deals, worth a combined $47.8 billion.
Roles advising Wyeth, Schering Plough, and RBS helped Morgan Stanley (MS.N) elbow aside arch-rival Goldman Sachs (GS.N) to claim top spot for worldwide M&A, advising on $216.7 billion of deals. Goldman fell to fourth place.
The turnaround is a small coup for Morgan Stanley, which from 2005 to 2007 ranked second behind its Wall Street rival for full-year M&A, before slipping to fifth place in 2008.
The data highlighted the wrenching transformation that investment banking and other parts of the financial system are undergoing.
Private equity firms -- which three years ago accounted for a fifth of all deals but are now starved of the leverage that fueled big buyouts -- undertook just $9 billion of deals, or 2 percent of the quarter's total.
In M&A, fees for completed transactions sunk 68 percent to $3 billion. Across the wider investment banking industry, which also includes loans and debt and equity capital markets, fees halved to $10 billion, marking the weakest quarter since 1998.
Still, some bankers found reasons for optimism, such as the record $311 billion of corporate bonds issued, including $30 billion-plus of bonds sold by Roche Holding AG ROG.VX to finance its buyout of Genentech Inc DNA.N.
"One significant positive is that while bank markets remain illiquid, bond markets have been very liquid," Livingstone at Credit Suisse said.
"We've seen a great deal of major bond sales to finance acquisitions, thereby avoiding the bank market. People will take advantage of those market conditions as long as they're available," said Livingstone, the bank's head of M&A for Europe, the Middle East and Africa (EMEA). .
Chris Ventresca, co-head of North America M&A for JPMorgan, said stronger companies would increasingly consider deals.
"The current M&A environment presents acquisition opportunities for those companies that have capital strength and confidence in their own business outlook," he said. "Today, that is a small universe that will grow as earnings stabilize and market uncertainty diminishes."
The data are preliminary and cover the year to March 25. Deal fees are calculated by Freeman & Co using an algorithm where fees or spreads are undisclosed.
(Editing by Hans Peters)
(additional reporting by Victoria Howley in London, Paritosh Bansal in New York and Jessica Hall in Philadelphia)