Global M&A market enters a triple-digit recession

17 Jul 2013

The value of global merger and acquisition deals (M&A) has dropped to less than US$1trn for the first time since 2009, drawing the market into a triple dip recession. Despite hopes of a new growth phase, the M&A market has dipped back into the red for the third time since the credit crunch began, according to Ernst & Young.

M&A in the first half of 2013 fell by 12pc in value against the same period in 2012, from US$1.13trn to just under US$1trn – the first time it has dipped below the critical US$1trn mark since 2009.

A sharper fall was only averted by a solid first half performance in the US, which saw deal value up 43pc on the previous year – contributing 46pc of total global deal value, as opposed to 28pc in 1H 2012. This was driven by a flow of mega deals in the country, accounting for nine out of 10 of the largest deals announced in the first half of the year.

“We see similar trends in an Irish context in line with global themes,” explained Graham Reid, head of corporate finance at Ernst & Young Ireland.  

“Appropriately geared Irish companies continue to transact and be attractive to investors, especially those with an international focus.

“Ernst & Young believes that the market dynamics are improving and expect greater levels of transaction activity as corporates continue to refocus and seek growth opportunities.”

China is the place to watch

M&A deals 2013, EY

The US cemented its spot at No 1, with US$455bn worth of deals. For the first time, China has taken the No 2 spot in terms of M&A value for the first six months of a year. It carried out US$80bn worth of deals, almost double that of the UK in third place (US$41bn).

Unsurprisingly, China was also the most preferred emerging investment destination for global corporates in the first half of 2013. Inbound deal value into the region was 74pc higher than in the first six months of 2012. The US retains its top spot as most preferred destination globally.

M&A levels in the Eurozone have fallen significantly in volume and value terms, down 17pc and 38pc respectively, principally driven by a fall in deal value of banking and capital markets transactions. Deal volumes fell across the board, due to declines in consumer products, diversified industrial products, media and entertainment, power and utilities, real estate, retail and wholesale, and technology.

BRIC volumes overall were driven down 14pc primarily by mining and metals and life sciences in China, diversified industrial and real-estate declines in Russia and CIS, and real estate in Brazil. India, however, held steady in volume. BRIC M&A is down to the lowest level since 2007. Brazil deal value has fallen to a third of what it was during the same period in 2012 and the “Cyprus effect” has hit Russia during the first half of the year.

“Continued caution was the prevailing M&A sentiment in the first half of 2013,” said Pip McCrostie, Ernst & Young’s global vice-chair for Transaction Advisory Services.

“The Eurozone crisis continues to impact nine global companies in every 10 and, as we predicted earlier this year, this has translated into a reduced appetite for M&A – even in many formerly deal-hungry emerging markets. The fundamentals for M&A are strong in terms of cash and credit availability, but we expect limited deal activity will continue through 2013.

“Large corporates recognise there is a favourable environment for deals and are actually expecting more M&A to happen – but by others. Most are adopting a ‘you first’ approach, unwilling to take the plunge themselves,” McCrostie added.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years