Global buyouts fall to three-year low

Continuing European debt crisis is scaring off the business of mergers and acquisitions with only US$446 billion in deals in third quarter

PUBLISHED : Friday, 28 September, 2012, 12:00am
UPDATED : Friday, 28 September, 2012, 3:37am

Global mergers and acquisitions slumped this quarter to a level not seen since the aftermath of the financial crisis amid increasing concern the economic recovery is deteriorating.

Companies have announced US$446 billion of takeovers since June 30, the smallest amount since the third quarter of 2009, according to data compiled by Bloomberg.

Chinese state-run oil company CNOOC's proposed purchase of Nexen was the only transaction to top US$10 billion in the period, the data shows.

Acquisitions are on pace to drop 15 per cent this year to US$2 trillion, the lowest in three years.

Cross-border takeovers have accounted for about half of all announced deals this year, a trend that may continue with European Aeronautic Defence and Space in talks to combine with BAE Systems.

Still, while chief executives worldwide are sitting on at least US$3.4 trillion in cash, many remain reluctant to pursue deals as Europe's sovereign-debt crisis drags on and signs grow that China's economy is slowing.

"Executives have the cash, but they don't have the conviction," said Andrew Bednar, head of advisory at Perella Weinberg Partners, a New York-based investment bank.

"I don't see any miraculous change in the M&A markets for the foreseeable future."

This quarter's slowdown has been most pronounced in Europe, where takeovers accounted for about US$92 billion, or 21 per cent, of global activity, the continent's lowest share since 2010. The Americas accounted for US$248 billion of transactions, and there were US$104.5 billion in the Asia-Pacific region.

More than US$720 billion in takeovers this year involve companies in more than one country, the highest share in five years, data shows.

That includes CNOOC's purchase of Canada's Nexen and Belgium-based Anheuser-Busch Inbev's US$20.1 billion buyout of the shares of Mexico's Grupo Modelo that it did not own.

EADS, based in Toulouse, France, and London-based BAE said this month they are in talks on a transaction that would potentially create the largest European aerospace and defence company with a combined market capitalisation of more than US$40 billion.

"What's remarkable about this year is the size of the cross-border transactions we're seeing," said Michael Carr, head of Americas M&A at Goldman Sachs Group.

"They're notable in a market that's characterised by caution."

Goldman Sachs is the busiest merger adviser so far this year, working on more than US$375 billion of transactions, beating Morgan Stanley and JP Morgan Chase.

There are fewer deals to fight over this year, partly because of Europe's extended sovereign-debt woes. The crisis has forced leaders to implement aid packages in Greece, Ireland and Portugal to help preserve the 17-nation euro zone, with the euro area bound for recession.

"There is still a fair bit of concern about investing in Europe in general, and southern Europe in particular," said Adrian Mee, the London-based head of international M&A at Bank of America. "There needs to be a sustained period of confidence in the macroeconomic outlook for the pace of deals to pick up significantly."