ZEW and Bureau van Dijk Electronic Publishing Present the ZEW-ZEPHYR M&A Index - Worldwide M&A Activity Down in 2006, but an Upturn Expected in 2007

The worldwide mergers and acquisitions (M&A) climate went through something of a cooling-off period in 2006. The ZEW-ZEPHYR M&A Index experienced a corresponding low between the start of 2006 and December 2006, sinking by around 11 per cent to 125.8 points (see graph below). Compared with the high reached in January 2001, M&A activity was well down, by a total of around 20 per cent. The ZEW ZEPHYR M&A Index, which the Centre for European Economic Research (ZEW) and Bureau van Dijk Electronic Publishing (BvDEP) are presenting this month for the first time, tracks the development of merger and acquisition transactions concluded worldwide from the start of the year 2000 onwards.

The path followed by the indicator shows the boom of activity during the "new economy" phase and the subsequent drop after September 2001. The index reached its lowest value in May and November 2003, although the level of activity in these months was roughly equal to the start value, for January 2000. After this, the index fluctuated considerably but showed an overall upward trend. By July 2005 the value was up by 50 per cent.

Although worldwide M&A activity had cooled off somewhat by the end of 2006, the value of the index in December 2006 was nevertheless a good 25 per cent over the basis value, at 125.8 points. Mergers and acquisition deals planned and announced in 2006, such as the takeover of the Spanish electricity supplier Endesa by German E.ON, could point to a marked upturn in M&A in the coming months of 2007. However, there is little chance that the highs of January 2001 and July 2005 will be repeated in the near future.

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 number and volume of M&A transactions, combined and adjusted for volatility. 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 volumes 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 volume is spread over a larger number of transactions within the month, this increases the value of the M&A Index, although the aggregate transaction value remains unchanged.

Contact

Dr. Christoph Grimpe, Phone: +49/621/1235-381, E-mail: grimpe@zew.de