Global Deal Predictions Fall to Earth

Survey of merger professionals, covering second half of 2007, shows that only a quarter see a climb in M&A next year.
Roy HarrisDecember 17, 2007

Only a quarter of merger-and-acquisition professionals see 2008’s global activity surpassing the level of M&A this year, according to the latest installment of the survey by the Association for Corporate Growth and Thomson Financial. When they took the pulse at mid-year, 38 percent of respondents were looking for an upswing over the next six months.

Those predicting an actual decrease? It’s now 38 percent, more than double the 16 percent of the earlier survey, with 37 percent saying they expect activity to hold steady. Further, the percentage that considers the current environment for M&A to be good or excellent plunged to 72 percent from 93 percent.

Also envisioned in the survey was a decline in the number of buyouts globally, something foreseen by 75 percent or respondents. More distressed deals were predicted by 93 percent. Still, 80 percent said they don’t plan to modify their investment strategies.

The latest survey, conducted last month, was drawn from 813 ACG members and Thomson customers. The majority of respondents were from the U.S., although executives from 28 countries in all completed the survey.

Cross-border deals were expected to continue increasing, they said. While 45 percent of respondents had not been involved in a cross-border transaction in the last year, 56 percent expected to be doing one by next mid-year.

“In the last six months, the credit crisis has clearly had an impact on dealmakers’ sentiment,” said ACG Chairman Paul Stewart, who also is principal of PS Capital Partners. “Initially, this is having a greater affect on larger sized buyouts that utilized syndicated debt for leverage. As for the middle market buyouts that rely more on relationship lending, although caution is in the air, senior bank and mezzanine leverage are available and deals are closing at a steady pace. If the credit situation leads to a recession in 2008, there is likely to be a shift in investment, as investors are presented opportunities that require capital to shore up the balance sheets of companies.”

Said Stewart: “On a global basis, U.S. dealmakers continue to look outside of the U.S. for investment opportunities, while the weak dollar is starting to attract non-U.S. investors to seek U.S. based investment. All in all, middle market private equity looks to remain a vibrant sector of the overall U.S. Capital Market.”

Through mid-December, Thomson’s tally of worldwide announced M&A activity was breaking all previous records, hitting $4.35 trillion, 20 percent over the 2006 record year. Global market conditions worsened in the second half of the year, however, with M&A plunging 30 percent from the soaring first half. The numbers show that cross-border activity has been responsible for 47 percent of the announced deals this year.

The survey points to more of a balance of power between buyers and sellers of companies. In the latest survey, 39 percent of respondents called the current situation a buyer’s market, with 33 percent labeling it a seller’s market, and 28 percent unsure. In June, 75 percent had described a seller’s market, with 13 percent calling it a buyer’s market and 12 percent not sure.

“The high degree of optimism that characterized the private equity buyout market at the start of the year has been replaced by a great deal of caution at the end of 2007,” added Robert Keiser, Thomson’s vice president for proprietary research.