2011 Was a Moderate Year for Worldwide M&A Transactions - Only Sparse Optimism for 2012

The ZEW-ZEPHYR M&A-Index, which tracks the development of worldwide M&A transactions, lost its momentum during 2011 and seriously declined compared to the previous year. In November, the index reached its lowest value so far this year with 102 points, ranging about 20 points below the respective figures of November 2010.

Between January and November 2011 transaction volumes increased by 50 billion Euros, compared to the same period of the previous year, with 815 billion Euros. In the same period of time, the number of worldwide transactions decreased significantly. A decrease in mergers and acquisitions of 15 per cent triggered the unfavourable development of the ZEW-ZEPHYR M&A-Index in 2011. But, as December is traditionally one of the most active months for the conclusion of mergers and acquisitions, a further downswing of the index is altogether unlikely.

The prospects for 2012 are not very positive, too. The ongoing pessimistic situation at the worldwide stock markets, the insecurity about the development of the debt crisis in the Eurozone, the higher capital requirements for banks, as well as their growing refinancing costs due to lower ratings, reduce confidence in a positive development of mergers and acquisitions in 2012. The anticipated negative impact of the debt crisis on the economy could delay companies’ plans for mergers and acquisitions. Besides, companies within the European Union might have to worry about the financing of their transactions by external funds, because the new finance market regulations are expected to influence the banks’ lending strategies. But, as many companies hit record in profits in 2010 and 2011 and hence are provided with significant liquidity, smaller transactions seem possible.

A look on the M&A rumors and the forthcoming transactions underpins the relatively pessimistic outlook for 2012. The number of rumors is decreasing during the second half of 2011. While, Bureau van Dijk (BvD) counted approximately 105 worldwide rumors on planned acquisitions in October 2011, the number counted in October 2010 ranged around 135. "The number of rumors is a good indicator for the future development of M&A conclusions in the upcoming year. Therefore, the current situation of rumors does not imply expectations of positive impetus for the development in 2012", says Vigen Nikogosian, researcher at ZEW. "The US-subsidiary T-Mobile USA is a good example showing how hard it is to sell a company for a reasonable price these days. For retiring entrepreneurs searching for succession it is also tough to achieve a proper purchase price for their lifes’ work," says Mark Schwerzel, International Director at BvD.

The ZEW-ZEPHYR M&A-Index is calculated by the Centre for European Economic Research (ZEW) and Bureau van Dijk (BvD) and tracks the development of mergers and acquisitions conducted worldwide since 2000. The calculation is based on both the number and the volume of mergers and acquisitions concluded worldwide, as recorded in BvD’s ZEPHYR Database. The index uses the monthly rates of change of both the volume and number 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 M&A activities in the world than can be attained by observing transaction volumes alone. The reason for this is that a firm’s value on the stock exchange has a strong influence on the transactions value, particularly as many acquisitions are paid for by means of an exchange of shares. Consequently, the share prices could have a disproportionately strong influence on estimating the trend in M&A transactions. If, however, the total transaction volume is spread over a higher number of transactions within a month, the M&A Index increases although the aggregate transaction value remains unchanged.

For further information please contact

Dr. Vigen Nikogosian, E-mail: nikogosian@zew.de