Mergers and Acquisitions Activity Remains Subdued in 2009

Strategic Insights -

Despite a strong start to the month, with 10 deals totaling $27 billion announced in the first week of March, mergers and acquisitions (M&A) activity remains subdued in 2009. Thomson Reuters' tracking figures suggest that M&A values and volumes have been below average for the first quarter of the year, with January-March M&A values down a third year-on-year to their lowest level since 2004. Buyers are cautious, fearing overvaluation of assets, while sellers are reluctant to part with their assets unless necessary, leading to a subdued M&A market.

Key Takeaways:

  • The first week of March saw a surge in M&A activity, with 10 deals worth $27 billion, but this was not indicative of a broader trend.
  • Thomson Reuters' tracking figures show that M&A values and volumes have been below average for the first quarter of 2009.
  • January-March M&A values were down a third year-on-year, the lowest since 2004.
  • Buyers are cautious due to concerns over asset overvaluation, and are waiting for stability to return to equity markets.
  • Sellers are hesitant to part with their assets unless necessary, leading to a purchase delay in the M&A market.
  • Sectors such as pharmaceuticals, consumer goods, and possibly resources, are expected to see M&A activity, as valuations and cash flows look reasonably solid.
  • The other area of M&A activity is expected to be in distressed assets, including financial services, where transformational deals may emerge for little outlay.

Statistics:

  • 10 deals worth $27 billion announced in the first week of March.
  • M&A values and volumes below average for the first quarter of 2009.
  • 33% decline in January-March M&A values year-on-year.
  • 2004 was the last recorded year with lower M&A values than in 2009.
  • Future M&A activity expected in sectors such as pharmaceuticals (e.g. GlaxoSmithKline's takeover of Stiefel Laboratories).
  • Future M&A activity expected in consumer goods (e.g. PepsiCo's bid for its two biggest bottlers).
  • Future M&A activity possible in resources, due to solid valuations and cash flows.

Sources:

  • Thomson Reuters' tracking figures.
  • [Thomson Reuters, None].
  • GlaxoSmithKline takeover of Stiefel Laboratories.
  • PepsiCo's bid for its two biggest bottlers.
  • Fiat's interest in General Motors' European operations.