Global mergers and acquisitions at lowest levels since Q1 2010
London, 26 March 2012 — International M&A volumes decreased by 24% in the first quarter of 2012 compared to Q4 2011 and were down 26% compared to the same period last year (Q1 2011) according to the Ernst & Young M&A Tracker, released today. Globally deal values were down 13% quarter on quarter (q-on-q).
The relatively smaller quarter on quarter fall in total deal value compared to deal volume in Q1 2012 is a reflection of the increase in average transaction value compared to Q4 2011. Average value for Q1 2012 was US$296m compared to US$260m in Q4 2011 (an increase of 14%).
The Ernst & Young M&A Tracker is compiled by Ernst & Young and the M&A Research Centre (MARC) at Cass Business School from six different transaction data sources. Quarterly M&A activity levels recorded in Bloomberg, CapitalIQ, Dealogic, Mergermarket, Thomson and Zephyr are consolidated and compared to activity levels in Q1 2010 using a proprietary weighted-average methodology.
Dave Murray, Transaction Advisory Services Markets Leader at Ernst & Young, says: "The market uncertainty of late last year has clearly impacted transaction activity in Q1 of 2012. That said, the small upswing in average deal values could indicate an increase in confidence amongst buyers – who while still cautious about undertaking transactions, are more willing to push through larger deals.”
The level of cross-border and cross-regional activity has been remarkably steady over the last nine quarters, since the start of the Ernst & Young M&A Tracker in Q1 2010. Although in Q4 2011 the upward trend reversed, the first quarter of 2012 saw both cross-border and cross-regional activity increase slightly to 32% and 20% respectively.
Another notable trend is the level of deals which are financed by 100% cash. This fell to 55% in Q1 2012, a level similar to the corresponding quarters in 2011 and 2010.
“For the strongest businesses, the historically low cost of debt and improving equity markets have driven funding strategy away from utilizing the mountains of cash that many well rated companies are sitting on, towards external sources of finance. This reflects an increasing confidence about access to capital markets for transactions"
The Middle East and North Africa (MENA) was the only region where both the number of announced transactions and their total value increased q-on-q in Q1 2012. Deal volumes increased marginally by 3% whereas the total announced deal value increased by 85%, driven by a number of transactions above US$500m announced in the quarter. Western Europe saw an increase of 36% in terms of total deal value announced, despite a 19% fall in the number of deals announced q-on-q. While Oceania saw q-on-q decreasing deal volumes of 29% and deal values of 44%.
Murray concludes: “From the wide variance in activity levels by region, it is clear that confidence levels are increasingly decoupled. It is also worth noting that there are large differences between markets within each region. While China and India are both economic powerhouses, their M&A landscapes vary widely – it’s worth speaking to people with good local knowledge before formulating a global or regional M&A strategy in today’s markets.”
About the Ernst & Young M&A Tracker
The Ernst & Young M&A Tracker was compiled for Ernst & Young by MARC, the M&A Research Centre at Cass Business School from six different transaction data sources. Quarterly M&A activity levels recorded in Bloomberg, CapitalIQ, Dealogic, Mergermarket, Thomson and Zephyr are consolidated and compared to activity levels in Q1 2010 using a proprietary weighted-average methodology.
The Ernst & Young M&A Tracker, weights each database according to the total value of deals in their datasets from the start of the M&A Tracker in Q1 2010. This results in a broad picture of transaction activity. Transaction activity levels are rebased (indexed) to 100 at the base period - Q1 2010, hence a figure of 115 shows a 15% increase compared to base period, and a figure of 85 shows a 15% decrease compared to the base period.
The Ernst & Young M&A Tracker only considers “change-of-control” deals and excludes privatizations, self-tenders, share buybacks, spin-offs, split-offs and recapitalizations. Transaction deal value has been set to a minimum of US$10m. Deal activity is measured from the date of announcement and rumored deals are excluded. Transactions are credited in the country and sector of the target only.
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