May 26, 2009 / 7:00 PM / 9 years ago

Recession suffocates global M&A activity

PHILADELPHIA (Reuters) - Blame the recession.

Just as consumers have curtailed their spending, corporations have slowed shopping as well, dragging the volume of global mergers and acquisitions down 36 percent so far this year.

The volume of worldwide mergers and acquisitions totaled $731.3 billion, a 36 percent decrease from last year at this time when volume totaled $1.14 trillion, according to data from Thomson Reuters.

“There’s a recession. That pretty much sums it up,” said Morton Pierce, chairman of Dewey & LeBoeuf’s mergers and acquisitions group.

“In circumstances like that, you have people concerned about the economy, their stock price and their growth prospects,” Pierce said.

“People are much more concerned about conserving what they have rather than extending what they have,” he said.

So far this year, merger volume in the Americas dropped 30 percent, while in Europe it plunged 47 percent. Asia Pacific volume fell 34 percent, while in Japan eased it 11 percent. The only bright spot was Africa and the Middle East, where M&A volume was up 4 percent.

“None of this is a surprise at all,” said Francis Aquila, a partner with law firm Sullivan & Cromwell in New York.

April and May were the slowest months this year. With just four days to go, this month will be the slowest May since 2004, Thomson Reuters said.

May was a mixed month in some ways.

Although the stock market showed stability, and some initial public offerings -- such as reservation company OpenTable Inc OPEN.O -- boomed, credit conditions worsened in housing, commercial loans and credit cards.

The financial sector came under scrutiny with the stress tests, or government tests of banks’ abilities to weather a deep economic downturn. Regulators ordered 10 lenders, including Wells Fargo and Morgan Stanley, to raise a combined $74.6 billion.

Several banks successfully raised capital after improved investor sentiment caused shares in the financial sector to more than double from their lows in early March.

“Does this mean things are back to normal? Absolutely not. They are not signs that we’re out of the recession, but they are certainly welcomed,” Aquila said.

    TOP RANKINGS

    So far this year, Morgan Stanley (MS.N) topped the rankings for worldwide M&A advisory work with $272.3 billion from 102 deals. Morgan Stanley was virtually tied with JPMorgan Chase & Co (JPM.N), separated by just $280 million in M&A deal volume. Citigroup Inc (C.N) and Goldman Sachs Group (GS.N) followed in third and fourth place, respectively.

    Among the top 10 advisers, only Morgan Stanley and Evercore Partners showed an increase in deal volume, according to Thomson Reuters. Evercore ranked tenth among the top advisers, with a 6.8 percent increase in deal volume from last year.

    “Overall, it will be a down year. A quiet year. But the second half of the year will be busier than the first half,” Aquila said.

    Financials, healthcare, and energy and power deals accounted for 63 percent of worldwide M&A volume so far this year, according to Thomson Reuters.

    In the second half of the year, investment bankers said they expect the financial sector to be busy as more banks consolidate and the pharmaceuticals sector to be busy with deals as drug companies search for new growth products.

    Distressed M&A, or the purchase of financially strapped or bankrupt companies, also will continue throughout the year as companies with strong balance sheets look for bargains.

    “Obviously there will continue to be distressed M&A. But that doesn’t fuel a vibrant M&A environment,” Pierce said. “What fuels a strong M&A market is companies feeling like they can be confident in raising money.”

    Reporting by Jessica Hall; Editing by Phil Berlowitz

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