U.S. Deal-Making Chills

Except in select industry sectors, merger-and-acquisition activity in North America remained muted in May.
Vincent RyanJune 15, 2012

May was another slow month for mergers and acquisitions in North America. As of May 29, there were 254 deals with a total disclosed value of $88.3 billion for the month, according to data from Mergermarket. That’s a drop from May 2011 of 40% by deal count and 22% by dollar volume.

CFOs were clearly interested in acquiring as of the first quarter, but they are not pulling the trigger on deals. In the March Duke University/CFO Magazine Global Business Outlook Survey, 39% of the 477 CFOs surveyed said they planned to buy in the following 12 months, and 14% planned to sell all or part of their companies.

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Even in the middle market, the segment that has buoyed U.S. merger numbers in the past year, metrics are down, according to Robert W. Baird & Co, an investment bank. Deal count was off 11% year-to-date as of the end of April, and dollar volume was off 22%.

The European debt crisis may be to blame for companies’ hesitance, Baird analysts say. “In view of concerns about weakening trends in Europe weighing on growth elsewhere, signs of a broader economic recovery may be needed for M&A performance to strengthen,” Baird predicted in a report released in May.

Still, certain sectors are humming. As of May 11, energy had the highest amount of U.S. M&A activity measured by dollar volume, $40.1 billion, followed by consumer foods ($17.1 billion), industrial products and services ($12.9 billion), and biotechnology ($12.4 billion), according to Mergermarket.

M&A activity tends to stall in the summer, so a sudden burst of deal making in any industry after May is unlikely. But Baird says if Europe’s crisis does not “short-circuit” financing, “the pieces remain in place for an upturn in the global M&A market.” Analysts point to positive variables such as credit-market accessibility, pressure on private equity to invest capital, and cash-rich corporate balance sheets, combined with limited prospects for organic growth.