Halfway through 2013, we take a look at broader M&A trends. Needless to say, it’s been quiet. Despite navigating through several key market events and macro concerns (U.S. fiscal cliff and election, eurozone concerns) coupled with still healthy corporate balance sheets and still attractive financing relative to historical levels, overall M&A activity remains quite weak. Announced M&A activity is tracking at a $2.5 trillion run-rate, down 3% from the first half of last year according to data from Credit Suisse analyst Howard Chen. The number of announced deals is down a more meaningful 20% from last year.
M&A Activity Down For Second Year?
If current trends persist or deteriorate further from here, 2013 will represent the second consecutive down year for broader M&A activity—CEO/board confidence and overall low levels of GDP growth appear to be the main limiting factors, and CS suspects the recent interest rate shock and pullback in the equity market certainly don’t help in the near term.
Further details from the latest CS note below.
Against this backdrop, we reduce our broader industry expectations—we are now forecasting $2.7 trillion of announced activity for the full year, which implies activity levels are down 2% from last year and anticipates an approximate 10% improvement in announced deal activity in the back half of this year from the first half.
Close Eye On CEO Confidence and Monetary Policy
Looking forward, we are keeping a close eye on CEO confidence and resolution of the U.S. monetary policy debate as important catalysts for a potential resurgence in deal activity, both in terms of getting announced deals over the finish line and pursuing new mandates.
A Brief Look at the Top 20 Largest Announced Deals
Large-scale M&A deal activity, one sign of market confidence that we monitor, was fairly spotty in the first half of 2013. The largest advisory mandate of the year was the $64 Bn spinoff of AbbVie from Abbott followed by the $27 Bn purchase of Heinz and the $25 Bn announced merger of Virgin Media Inc. (NASDAQ:VMED) (LON:VMED) and Liberty Global Inc. (NASDAQ:LBTYA) (NASDAQ:LBTYB) (NASDAQ:LBTYK).
From an advisory perspective, one interesting trend that we would note … 90% of the top 10 global deals and 70% of the top 20 global deals include independent, non-bulgebracket advisors, a positive affirmation that the independent firms continue to gain share, albeit in a depressed market backdrop.
Revising Our Industry M&A Outlook
We Now Forecast a 1-2% Decline in Volumes for 2013 & And 8-10% Reacceleration in 2014 With first half 2013 announced M&A activity levels currently running at a tepid $2.5 trillion pace (-5% yr/yr), we reduce our broad industry expectations for the back half of this year.
Specifically, for full year 2013, we’re now calling for $2.7 trillion of announced activity—our revised forecast implies that full year 2013 will be the second consecutive down year for M&A activity but also anticipates an 8-10% pick-up in the back half of the year.
Looking forward, we continue to believe the current fundamental backdrop boasts many of the ingredients that could trigger a recovery in advisory activity, including strong corporate balance sheets, low cash yields and still-compelling equity valuations. We believe the limiting factors remain limited CEO confidence and sluggish global growth (which some would contend could be conducive for more M&A activity).
We anticipate that global announced M&A activity will increase 10% next year to $3.0 trillion and re-ignite the M&A up-cycle.