Europe’s sovereign debt crisis and turbulent financing markets rattled the confidence of corporate dealmakers across the globe in the first half of the year to damp already lacklustre mergers and acquisition activity. The volume of deals worldwide rose 2.9 per cent to $828.9bn during the first six months of the year, compared with the $805.9bn announced in the same period a year earlier, according to data from Mergermarket.
US chief executives were also wary of launching bids. Activity in the region fell 18.8 per cent in the first half to reach $313.3bn. That represents the lowest half-year period since 2003. Wilhelm Schulz, European head of M&A at Citigroup, said: “The gun is loaded, but in light of recent market volatility, boards are reluctant to pull the trigger. William Vereker, co-global head of investment banking at Nomura, said he expected continued activity for the second half of this year, but that the outlook was less positive. He said: “When you add it all up – a slow US recovery, ongoing sovereign debt issues in Europe, upcoming regulatory changes and uncertainty over earnings – the headwinds against a pick-up in M&A are increasing”.
Boon Sim, global head of M&A at Credit Suisse, said the deal conversion rate was not what it was at the beginning of the year, when there was high pent-up demand. “While there is no doubt an economic recovery is under way, however, it will not be linear, and hence deals will come in batches”. But bankers said investment-grade companies were able to access financing for prospective deals. Both debt and equity issuance has fallen sharply as a result of the market turmoil from the eurozone sovereign debt crisis but sentiment has begun to stabilise in recent weeks. BASF, the world’s largest chemicals maker, last week arranged a €3bn bridge loan to fund an acquisition of Cognis, the German maker of food and cosmetics ingredients . Hernan Cristerna, head of M&A for Europe, Middle East and Africa at JPMorgan, forecast that the growing amount of cash on balance sheets was likely to put companies under pressure to utilise it.
Additional reporting by Jennifer Hughes