ZEW-ZEPHYR M&A-Index – Low M&A Activity of 2010 Is Expected to Continue until Mid-2011

According to the ZEW-ZEPHYR M&A-Index, the global M&A activity has reached this year’s lowest value in November with 97 points. With this value, the indicator in November ranges about 3 points below its initial level of 100 points in January 2000, and nearly on the same level as in May 2009, when it had reached its lowest level so far. A calculated forecast of the further course of the indicator shows that a worldwide decreasing M&A activity can be seen to emerge. A rapid recovery of the global economy and an on-going positive development of the worldwide stock market indexes could imply a trend reversal for the M&A activity. The ZEW-ZEPHYR M&A-Index is calculated every month by the Centre for European Economic Research (ZEW) in cooperation with Bureau van Dijk (BvD), and provides an overview of the development of global mergers and acquisitions concluded.

After the rapid recovery of the worldwide stock market indexes and the OECD’s leading indicator "Composite Leading Indicators" (CLI), which reflects the worldwide economic short-time development, a stock market correction took place at the beginning of 2010. The significant increase of the ZEW-ZEPHYR M&A-Index of the end of 2009 as well did not continue during 2010. Furthermore, it continued decreasing before and after the summer break, until it reached its lowest level this year. However, compared to the previous month, the acquisition rumours as well as the announcements of mergers and acquisitions in November 2010 increased noticeably. The M&A activity could be intensified due to the usual positive development of M&A activity at the end of the year.

Still, an all in all decreasing intensity in the worldwide M&A activity can be seen to emerge during the next six months. Thus, after the excellent situation in 2007 and 2008, the M&A activity will continue to tarnish. This scenario, however, could change if the conditions at the worldwide stock markets develop significantly positive and if the global economy recovers rapidly. This would have a positive impact on the M&A market, too, and it would lead to a trend reversal in the M&A activity, so that in the run of 2011 the trend will bottom out. Based on the outstanding development of the German stock market during the next year, expected by financial market experts who have been interviewed within a recent survey conducted by the ZEW in Mannheim, the German M&A market could develop positively compared to the global market; so far the assessment of Mark Schwerzel, International Director at BvD.

The ZEW-ZEPHYR M&A-Index, calculated every month by the Centre for European Economic Research (ZEW) in Mannheim in cooperation with Bureau van Dijk (BvD), shows the development of worldwide mergers and acquisitions since the beginning of 2000. ZEW-ZEPHYR M&A-Index calculations are based on the number and the volume of worldwide mergers and acquisitions concluded, which are listed within the ZEPHYR database of BvD. The index is based on monthly percentage changes in the number and volume of mergers and acquisition transactions, summarized in a volatility and inflation-adjusted form. By this, the index shows more precisely the level of the global M&A activity than an exclusive observation of the transaction volume. The reason for this is that the assessment of firms at the stock market has a huge influence on the transaction value, since many firms are paid through an exchange of shares. Consequently, share prices would have an excessive influence on the assessment of the transaction development. If the volume is divided into more transactions, the M&A Index shows a higher value, even if the total transaction value remains constant.

To examine the perspectives of global M&A activities, a forecast for the development of the M&A-Indexes until mid-2011 was made, considering the macroeconomic and financial values with an empirical analysis. The analysis considers the early indicator of the OECD as well as the MSCI Index for the global stock price trends, the rumours and announcements of future mergers, and the assessments of experts concerning the development of the global stock market indexes, which are gathered monthly with the ZEW Economic Sentiment Forecast. The survey was joined by around 350 financial experts. To detect the cycles of the M&A Indexes, the Hodrick-Prescott filter was used.

For further questions please contact

Dr. Vigen Nikogosian, Phone: +49 (0)621/1235-386, E-mail: nikogosian@zew.de