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Is the M&A Recession Really Over?
Has the M&A market finally hit bottom?
For two years, deal makers have been searching for signs of that bottom. And for two years, merger activity has kept going down. Even as the economy and the stock and credit markets showed signs of improvement this summer, the M&A market remained a laggard.
And yet lately, there have been signs of life. Since Aug. 31, corporate buyers have announced a spate of big, brand-name deals, such as Walt Disney's $4 billion acquisition of Marvel Entertainment; Kraft Foods's $16.73 billion takeover offer for Cadbury; and Dell's $3.9 billion deal to purchase Perot Systems.
So, have we seen the bottom? The answer seems to be at least a qualified yes. M&A has hit its cyclical trough and is starting a slow slog back up. That certainly was the take of Mr. Market on Monday.
'These deals are a strong, bullish sign for the market,' said Howard Lanser, a director at Robert W. Baird. 'These are game changing, strategic transactions by the CEOs of these companies. The CEOs are showing confidence and are taking a longer term view.' But Lanser cautions that M&A activity needs to be broader across more industries for a more robust recovery. In the near term, deal volume is likely to remain depressed, just not at levels seen in July and August.
A look at September's numbers lends support to that outlook. The dollar volume of world-wide and U.S. deals jumped significantly from August, up 58% and 79%, respectively. Yet the number of announced deals is less encouraging, with September likely to be flat with August. And while deal volume is up from August, September still marks the 12th straight month of year-over-year declines, according to Dealogic.
One reason is that, although corporate buyers increasingly feel the worst is behind them, they still don't have a feel for the market. Buyers are concerned that they will be buying into a false uptick, while sellers remain concerned that they are selling too low. That may be keeping a number of would-be buyers on the sidelines.
But given the struggles of the M&A market, the positives are finally outweighing the negatives and, more importantly, confidence is coming back.
