ZEW-ZEPHYR M&A-Index: Worldwide M&A Activities Reach Lowest Level for four Years in the First Quarter of 2008

Worldwide mergers and acquisitions (M&A) activities have decreased considerably in the first quarter of 2008. The ZEW-ZEPHYR M&A-Index finished at 113 points in March 2008. In December 2007 the Index had been at 138 points. This is equivalent to a drop by 18 percent.

Although the Index still stands above its starting level of 100 points in January 2000, the Index is now below its longtime average of 125 points and has reached currently its lowest level for four years. Thus, the impact of the worldwide subprime crisis and the resulting slowdown of economic momentum are obviously affecting the M&A market. For the coming months, the Index’s further decrease seems possible. On the one hand, the profit situation of many firms, particularly in Europe, continues to be excellent, which is beneficial for a recovery of the M&A market. On the other hand, the turbulences at the global stock markets, might trouble M&A activities as shares become increasingly unattractive as a currency for acquisitions.

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. 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