Chill set to continue for M&A market

Oct 05, 2012
<p>Ernst &amp; Young sees a downturn in &lsquo;aspiration and ability to do deals&rsquo;</p>

Bankers were apparently less than thrilled when Glencore called in former UK prime minister Tony Blair to smooth over relations with the Qataris during its bid for Xstrata.

‘He's not a banker, he doesn't know about mergers and acquisitions or mining,’ someone familiar with the deal griped to Reuters.

Followers of the UK political scene will know that, while the former PM may not have much of a financial background to speak of, he is well known for his deal making – just ask his successor, Gordon Brown. Still, M&A bankers have bigger things to worry about.

The global chill on M&A activity is set to roll on, according to the latest Ernst & Young M&A Tracker survey.

Looking at completed deals, the report finds worldwide deal activity fell in the third quarter of 2012 to its lowest level since Q1 2010. Despite a slight uptick in Q2 this year, Q3 saw deal volume fall 18 percent and value drop 11 percent.

Unsurprisingly, macroeconomic uncertainty – especially the continuing woes of the eurozone – is cited as the main drag on activity.

‘Confidence has dipped once again and we are seeing a downturn in aspiration and ability to do deals,’ comments Dave Murray, Ernst & Young’s transaction advisory leader for Europe, the Middle East, India and Africa, in a statement discussing the findings.

‘Leading corporates are focusing more on optimizing internal operations to drive growth, profit and volume. The issues in Europe won’t be resolved overnight, but when the tide does eventually turn, it’s these companies that will be in the strongest position to act.’

The difficulty in completing deals is underlined by two other findings in the survey. M&A conversion rates are at their lowest level for 10 years, notes Ernst & Young, with only 60 percent of deals announced in the last nine months going on to complete in the same period.

Meanwhile, the average length of time it takes to complete a deal has jumped to an all-time high of 81 days.

Given all the effort it’s taking to put these deals together, maybe bankers would secretly celebrate if Blair began to offer his assistance on a regular basis.

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