That Was the Year that Wasn’t — for M&A

In 2008, nearly every global and U.S. category was off, according to a William Blair report, and 2009 looks little better. An exception: U.S. deals...
Roy HarrisJanuary 28, 2009

As year-end tallies of merger-and-acquisition activity for 2008 start to roll in, William Blair & Co.’s “Merger Tracker” summary may capture it all in a single cliché. “M&A activity ended 2008,” it concludes, “with a resounding thud.”

The report, focusing mainly on middle-market activity, also breaks down the relative plunges for the year in a number of areas – after calculating that the overall number of global deals slid 6.2 percent, to 38,033 announced transactions, with dollar volumes declining 33.3 percent, to $2.85 trillion. Still, it does identify several global and U.S. subsectors that could be exempt from the report’s similarly bleak 2009 projections.

Among the areas within those struggling sectors that show some promise, according to report author Stephen M. Bernard: the information technology segment of health care, and – among retailers – department-store discounters, and perhaps even health-and-beauty merchants. “Companies selling low-price-point, replenishable product to leading mass retailers (especially chain drug stores and discounters) should benefit from share gains by these retailers,” the report predicts.

Mainly, though, the Blair study offers a litany of year-to-year fall-offs, with prospects for more in the current 12 months. It measures U.S. M&A as falling 15.2 percent in number of deals (10,919 of them), with deal value plunging 32.5 percent (to $1.18 trillion.)

The only size of deal to show any strength: U.S. deals valued under $50 million. There were 2,953 of those, up 20.5 percent, and their total value, $43.50 billion, was up 8.5 percent over the prior year.

The study pictures a bleak future for dealmaking this year. “Given the current environment, it does not appear that the level of M&A activity will increase much in the near term,” Bernard writes. “The broad declines in the global equity markets in the second half of this year have further weakened an already shaky environment and will likely limit activity among strategic corporate buyers for at least a quarter or two. Add in the continued near shutdown of the credit markets and increased fears of a deep and prolonged global recession and it is easy to conclude that M&A activity will likely remain depressed in the near term.”

December was the exclamation point on the 2008 reversal of fortune. Globally, Blair tallied 2,763 deals, off 21.5 percent, with a $160.2-billion total value that plummeted 54.7 percent from the year-earlier month. In the U.S., only 739 December deals were struck, off 32.7 percent, with the $58.1-billion value representing a 59.4-percent decline.

“For the full year, the U.S. middle-market managed a 4.3-percent increase in the number of transactions[to 4,584],” the report notes, but the dollar volume was off 20.9 percent [to $365.1 billion.] Those numbers include the under-$50-million deal gains, “the only segment to register an increase,” according to the study.

“Although still nothing to write home about,” Bernard notes, “these totals compare favorably with the overall market.”