Press release

Mergers and acquisitions at lowest level but overdue recovery in 2014

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  • Volume now lower than “dotcom” years at turn of century
  • Despite headline-grabbing mega-M&A and third largest deal ever, value falls
  • “Green shoots” as volume of US$500-1b deals grows at fastest rate since 2000
  • China cements #2 spot in terms of value and volume

LONDON, 13 JANUARY. Despite hopes that M&A moved into a sustained growth phase last year, 2013 saw an unprecedented hat-trick – a third year of falling deal activity globally. Those falls now see M&A at its lowest level for eight years and below “dot com” levels 13 years ago. Global M&A activity fell by 6.2% against 2012, with 37,257 deals announced during 2013, with value of US$2.3t declining 6.3%, despite a flow of megadeals – and in Vodafone-Verizon the third largest deal ever – according to data analysis by EY, released today.

Global M&A activity by deal value and volume
Sources: ThomsonOne, EY analysis (25.11.2013)Sources: ThomsonOne, EY analysis (25.11.2013)

 Pip McCrostie, EY’s Global Vice Chair, Transaction Advisory Services, says:

“While the last quarter of 2013 saw modest improvement on the economic front, the M&A situation remained bleak. As a result, deal inertia continued as many companies opted to spectate rather than participate in the M&A market. But 2014 should finally see the turning point in this prolonged M&A recession. Deal fundamentals are strong in terms of cash and credit availability. Improving boardroom confidence means many large corporates are planning to achieve growth through acquisition in 2014.”

China cements #2 position but mature economies to lead growth of M&A in 2014
The M&A picture was mixed across the BRIC nations, with sharp falls in activity in Brazil (-27.5%), Russia (-23.8%) and India (-9.2%). China was a relative bright spot in 2013, comprehensively cementing its position as the #2 market for M&A activity. Deal volume in China rose 4.6% against 2012, with value also rising 38%.

Unsurprisingly, China was also the most preferred emerging investment destination for global corporates in 2013.

However, sharper falls in M&A value globally were only averted by a relatively robust performance in the US, which saw deal value involving acquisitions of US based assets up 27% on previous year.

Overall US-related M&A, combining domestic, inbound and outbound transactions involving US headquartered companies, contributed 52% by value and 28% by volume of all global deals – illustrating the significant impact the deal economy in the US has on the global picture.

 “China’s global economic influence is expanding and that will continue,” says McCrostie. “But any return to growth for M&A in 2014 will be led by the mature economies as the majority of investment capital is being allocated to developed markets1 and the volume and value of deals in those markets will have a significant impact on the global deal economy.”

Germany took #3 by total value, helped by a doubling of inbound M&A into the country, which totaled US$74b in 2013. The UK and Canada take the other places in the top 5 by deal value.

Sectors hit by falling deal volumes
Globally, M&A activity dropped in most sectors dropped against 2012, with only Power & Utilities and Real Estate showing any growth in deal volume. The biggest falls were Metals & Mining, down 27% and Oil & Gas, down 21% - not surprising given the level of M&A activity in those sectors between 2008-2010.

In terms of value, mega-deals saw Telecommunications rise 153%, helped by the Verizon-Vodafone transaction, Media and Entertainment was up 33% and Life Sciences was up 32%. Deals in the telecom sector are being driven by increasing appetite for bandwidth as operators look to provide more data-driven services. There have also been several notable cross-sector deals in the TMT space, such as Microsoft’s acquisition of Nokia’s handheld devices business and Vodafone buying Kabel Deutschland.

Metals and Mining – in the absence of any deal approaching the size of Glencore/Xstrata or TNK-BP – saw a 51% drop in value. Banking & Capital Markets, which was boosted in 2012 through the realignment of portfolios brought about by increased regulatory concerns also saw significant falls in deal value in 2013.

Growth prospects for 2014 – green shoots already sprouting?
Despite another recessionary year for M&A, there is a real prospect of a deal revival in 2014.

More than a third of global corporates plan an acquisition next year – a significant increase in appetite compared to this time last year1.

There are already signs of recovery in the critical US$500m - US$1b deal range, which has often been a bellwether of broader M&A activity. In the second half of 2013 there was a 29% average monthly increase in deal volume in this bracket and 26% by value – the highest rise since 2000, with the exception of a brief 2010 rebound.

“Upper middle market momentum in deal activity points to growth – albeit modest – in 2014,” says McCrostie. “We know that 68%[1] of large global companies expecting to do deals say they will pursue acquisitions of between US$500m and US$1b in 2014. Megadeals are largely immune to market conditions and will continue to happen. In addition, we now expect the mid-market to fuel M&A growth as boards target assets that fit their growth strategy.

“Following years of deal recession, we should see a slow, steady return of growth in M&A in 2014 as companies re-enter the transaction market, looking to do smart and sustainable deal-making.” 

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[1] EY Capital Confidence Barometer – October 2013