ZEW-ZEPHYR M&A-Index - No Great Impetus for Worldwide M&A Activities
M&A Index
In the first six months of 2011, the upturn of M&A activities as seen in 2010 has slowed down again. The ZEW-ZEPHYR M&A-Index tracking the mergers and acquisitions completed worldwide reflects this development. In May 2011, the ZEW-ZEPHYR M&A-Index dropped below its starting level of 100 points in January 2000. This was last seen in the crisis year of 2009. The index’s decline was smaller than expected at the end of last year. This is primarily due to the overall good business environment. In June 2011, the index calculated monthly by the Centre for European Economic Research (ZEW) and Bureau van Dijk (BvD) recovered again and stood at a level of 102 points. This seems to indicate a continuing sideward movement.
“So far there is no great impetus for the M&A activities to launch a new global wave of mergers, like the one we witnessed in 2007 and 2008,” says Vigen Nikogosian, ZEW researcher. In some economic sectors, like the stock exchange, more attempts for acquisitions could be observed. However, the spark did not ignite in other economic sectors. Compared to the last six months in 2010, the number of rumours on upcoming mergers and acquisitions remained unchanged in the first half of the year 2011. Despite the fact that many companies are currently making record profits and the global stock indexes are showing a positive trend, the M&A market is hardly affected by this development. At least, the M&A activities do not benefit from the currently high stock prices which are often used as “means of exchange” for M&A transactions. This could be due to the actual uncertainty regarding the future development of the global economy and this sceptical assessment is not without cause. For instance, a close look at the early indicators for the economic development collected in June 2011 as part of the monthly ZEW Financial Market Test shows that there is less optimism for both the United States and important countries in the euro zone. So it remains to be seen if and when there will be sufficiently great impulses for a new upturn of M&A activities.
The ZEW-ZEPHYR M&A-Index is calculated every month by the Centre for European Economic Research (ZEW) and Bureau van Dijk (BvD) and has been tracking the development of mergers of acquisitions completed worldwide since the beginning of 2000. The ZEW-ZEPHYR M&A-Index is based on the number and volume of global mergers and acquisitions recorded in the BvD’s ZEPHYR database. The index uses the monthly rates of change of both volume and value of M&A transactions, combined and adjusted for volatility and inflation. As a result, the index offers a much more precise picture of the level of worldwide M&A activities than a mere observation of the transaction volume. The reason for this is that a firm's value on the stock exchange has a strong influence on the transaction value, particularly as many acquisitions are paid for by an exchange of shares. Consequently, stock prices could have a disproportionately strong influence on how the development of M&A transactions is assessed. If, however, the volume is spread over a larger number of transactions within one month, the value of the M&A-Index increases even though the aggregate transaction value remains unchanged.