31 July 2012

Global M&A – a tale of two extremes?

Unsurprisingly, the ongoing global debt crisis has continued to affect dealmaking activity in the first half of 2012, but while uncertainty prevails, there seems to be some light at the end of the tunnel in the shape of possible recovery signs in Europe and the Middle-East.

Even though global deal values and volumes have taken a tumble for the third half-yearly period in a row, there are still a few reasons to be optimistic, as not every region seems to have had misery heaped upon it in 2012. A prime example is western Europe, where - whisper it - it looks like investors could once again be coming round to the idea of ploughing cash into companies.

Deals involving targets in the region increased in value during the first half of this year, rising 37 per cent from USD 328,008 million in the second half of 2011 to USD 450,097 million. This is a promising sign, particularly as the figure accounted for a third of the total investment worldwide so far this year (USD 1,381 billion).

By contrast, the volume of transactions in western Europe actually dropped by 14 per cent to 8,770 from 10,180 in the first six months of this year, marking the third consecutive fall in deal numbers in the region (H1 2011: 10,353). But don’t hang your head in despair just yet, because the decline in volume coupled with the increase in value merely suggests that there were more high-value deals during the six-month period under review than in the second half of 2011. This is supported by the fact that all of the top 20 transactions in H1 2012 were worth more than USD 1,000 million, and five were even valued in excess of USD 10,000 million. So perhaps after a long period of hesitance, investors are finally starting to regain some of their confidence and are beginning to think about digging deep again.

This promising trend continued in the private equity sector, as deals in western Europe were valued at USD 37,416 million, up 8 per cent on the USD 34,589 million recorded during the second half of 2011. Nevertheless, this is still quite a drop from the same period last year, when USD 48,355 million was recorded.

However, as always, it’s not all good news. Unfortunately, when we look at the results for deals in North America, we clearly see a reduction in both volume and value. Indeed, this represents the region’s third consecutive fall in value, and actually plumbs new depths, taking the results to their lowest level for the last five years. This shows that, unfortunately, the promising signs shown in western Europe do not extend across the Atlantic. The value of deals in North America accounted for 28 per cent of the total deal value of USD 1,381 billion recorded during the first half of the year. As if things weren’t bad enough, private equity investment in the region was also down.

To add insult to injury, levels in Asia-Pacific also decreased during the period under review. In fact, deal volumes actually fell by 20 per cent, from 10,480 to 8,360. As with North America’s new low, this represents the first time volume in the region has dipped below 10,000 for the last five years. Values also fell by a significant margin – down 27 per cent from USD 437,825 million in H2 2011 to USD 318,263 million. This figure accounted for just 23 per cent of overall global deal value in the period. Unsurprisingly, private equity investment in the region also decreased for the third period in a row.

The Middle-East also showed plenty of positive signs as the value of deals there more than doubled on H2 2011. This is still lower than the corresponding period last year, but it does at least represent a step in the right direction compared with the end of 2011.  Similarly to the results for Europe, volume was down on H2 2011, but value increased, showing that perhaps the region’s investors have also taken some comfort from encouraging signs and decided to invest.

So are things on the up? Or is it all just a false alarm? It’s difficult to be certain at the moment. At this stage, we just have to hope that investors in western Europe and the Middle East know something the rest of us don’t, and if so, maybe it won’t be too long until the rest of the world follows suit.
© Zephus Ltd