Wall Street's mergers, acquisitions continue, but it's no big deal
By Christina Rexrode, APNEW YORK--More companies are getting together these days, but it's no big deal.
July 16, 2012, 12:09 am TWN
Corporate mergers and acquisitions were up for the first six months of this year in the United States, but only if you measure a certain way: The number of deals announced grew to nearly 5,900 through June, up from about 5,100 in the first half of 2011, according to research firm Dealogic.
Measure by what really counts, the dollars, and all that activity looks far less impressive: The average deal announced in the first half was valued at US$68 million, down from US$102 million a year ago.
“I wish I had better news,” says Amanda Levin, who tracks mergers and acquisitions at Mergermarket, a research firm. “It's all doom and gloom.”
Blame the economy and uncertainty.
Businesses don't know how long the debt crisis in Europe will last, who will win the presidential election, what will happen to corporate tax rates and where gasoline prices will go next.
Financing is cheap for potential buyers, with interest rates at historic lows, but businesses may not see a rush to secure financing because the Federal Reserve plans to keep rates low for at least two more years.
The M&A slowdown isn't for lack of cash: Companies are sitting on near-record piles of it, socking it away ever since the Great Recession. The Federal Reserve calculates that nonfinancial companies have stored US$1.7 trillion in cash and other liquid assets, up 17 percent from three years ago.
Businesses seem content to hold on to their money.
“People don't like to make big decisions, the consequences of which they will have to live with for a very long time, when there is so much uncertainty,” says Anil Shivdasani, a professor in the business school at the University of North Carolina. “And in those situations, doing nothing is often seen as the safer route.”
It's not just the United States. Mergers and acquisitions around the world are down 16 percent by volume in the first six months of this year compared to the same period in 2011, according to Dealogic. It measures M&A volume by adding up the prices that buyers expect to pay in announced deals. In the U.S., mergers and acquisitions are off 23 percent and had their slowest first half since 2003.