Life & Culture

Sober times for M&A


The excitement surrounding the planned merger of Glencore and Xstrata cannot hide the large reduction in mergers and acquisition (M&A) in 2012.

According to preliminary data released by Thomson Reuters, global M&A deals totalled just $416 billion in the first quarter of this year as compared to $737 billion in the corresponding period in 2011. That is a substantial fall.

The figures for the UK make particularly sobering reading. According to data provided by financial information company, Mergermarket earlier this year, dealmaking in this country has reached its lowest levels since 2001.

Clearly, the ongoing sovereign debt crisis has played a key role in dampening down transactional activity, but there have been other factors at play as well.

In particular, concerns regarding economic growth have undermined enthusiasm for those considering M&A. It appears that companies have been more focused on reducing or refinancing their debt and shareholders have been more preoccupied by dividend yields and cash returns.The impact of changes in the regulatory environment must also not be ignored. In the UK, amendments to The Takeover Code, introduced last September in the wake of the Kraft/Cadbury merger in 2010, which tightened the rules that require potential bidders to "put up or shut up", has already been felt with a reduction in the number of hostile bids being launched.

‘Concerns over economic growth have undermined enthusiasm for M&A’

More generally, there is also the view that further consolidation by industry leaders in particular sectors will simply lead to increased regulatory scrutiny.

The important question is: How long will this drop in M&A activity last? Perhaps, as in the past, we will have to look to the US to give us a lead. With American economic indicators signalling a return to strong financial growth, there is some optimism that cash-rich US companies will now start seeking out suitable corporate targets. Such new-found hope may need to be slightly tempered by concern over a degree of political uncertainty in what is, of course, a US presidential election year. Even so, any sense that we may soon be witnessing an increase in the number of transactions is likely to be warmly welcomed across the City and beyond.

Jonathan Morris is a partner at the international law firm Berwin Leighton Paisner LLP

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