ZEW-ZEPHYR M&A-Index - M&A Activities Stabilise - Hard Times for Private Equity Investors

Worldwide M&A activities have stabilised at the end of 2008 despite the rough economic climate and the problems from the financial market crisis. The ZEW-ZEPHYR M&A-Index rose by 14 points to 127 points in December 2008. It now stands significantly above the launch-level of 100 points in January 2000 and slightly above its long-term average of 125 points. The index is published by the Centre for European Economic Research (ZEW) and Bureau van Dijk Electronic Publishing (BvDEP). It is calculated monthly and tracks the development of mergers and acquisitions transactions conducted worldwide.

Most of the reported M&A activities are driven by transactions which have been initiated before the aggravation of the crisis and which have been closed by the end of last year. An example for this is the acquisition of Continental by Schaeffler Group. "Many economically healthy firms have identified potential target firms which have become attractive because of low firm valuations", says Dr. Christoph Grimpe, Senior Researcher at ZEW. This is also a reason for the continuing attractiveness of US companies as evidenced by the announced multi-billion takeover of the US pharmaceuticals firm Wyeth by Pfizer. "Twelve target firms in the 20 worldwide largest transactions in 2008 were US companies", says Mark Schwerzel, International Director BvDEP.

Nevertheless, many transactions are dependent on the willingness of banks to finance the deal. Positive effects on the M&A market can thus be expected if governments succeed in stabilising the banking system worldwide quickly. However, no positive effects can be expected from private equity investors who once had a share of almost 40 percent of all transactions before the crisis began. Due to the high share of debt employed in these transactions ("leverage") private equity investors are dependent on the provision of cheap loans from banks which are, however, currently not available. As a result, it will probably take a long time for private equity investors to get back to the previously reached level of activity.

The ZEW-ZEPHYR M&A-Index, which the Centre for European Economic Research (ZEW) and Bureau van Dijk Electronic Publishing (BvDEP) calculate every month, tracks the development of mergers and acquisitions transactions concluded worldwide from the start of the year 2000 onwards. The ZEW-ZEPHYR M&A-Index is calculated on the basis of both the number and the volume of mergers and acquisitions concluded worldwide, as recorded in BvDEP's ZEPHYR Database. The index uses the monthly rates of change of both the 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 M&A activity in the world than can be attained by observing transaction values alone. 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 means of an exchange of shares. The consequence of this is that the share price could have a disproportionately strong influence on estimations of the trends in M&A transactions. If, however, the total value is spread over a larger volume of transactions within the month, this increases the value of the M&A Index, although the aggregate transaction value remains unchanged.

For further information please contact

Dr. Christoph Grimpe, E-Mail: grimpe@zew.de