Global M&A activity remained slow in the second quarter, with deal volume sitting at its lowest levels in three years, according to the latest M&A Trends & Insight for Lawyers report from Thomson Reuters Business Law Advisor ? M&A. U.S. and UK M&A activity, however, bucked the global trend, with volume up 14 percent and 13 percent respectively.
Global M&A activity dropped in volume by five percent compared with the first quarter of 2012. At the same time, a flurry of large deals pushed the total value of deals up 23 percent in the second quarter. Despite this surge, the total deal value so far this year is still running well below the levels seen over the same time period a year earlier.
The slowdown in global deal activity over the first six months of the year compared with 2011 is widespread, reflecting current global economic malaise, as well as political and financial market uncertainty in much of Europe and the Mideast. Of the 22 most active countries for M&A, more than two-thirds are showing year-on-year declines in both domestic and cross-border activity.
Private equity deal volume and total deal values were up compared with the first quarter (up 14 percent and 48 percent, respectively), yet activity is running behind the comparable time period from a year ago. In addition, the value of sellside deals (where private equity firms sell their interest in a company) has exceeded buyside deals (where private equity firms buy an interest in a company) for nine of the most recent 11 quarters. The largest private equity deal in the second quarter was Walgreen Co.'s acquisition of a 45 percent interest in Alliance Boots GmbH from KKR & Co for approximately U.S. $6.7 billion.
Reflecting continued financial market uncertainty, private equity buyers continued to demand reverse break fees in 90 percent of the private equity deals conducted in the second quarter.That figure has held fairly steady over the past five quarters. The second quarter saw an uptick in private equity buyers' willingness to permit "go-shop" periods in their deals, which allow a limited amount of time for the target company to solicit and talk to other potential buyers.
Meanwhile, deals involving publicly traded companies are growing increasingly contentious. Both the volume and value of hostile public deals reached their highest level in nearly a year. In addition, changes in the regulatory landscape continued to increase the complexity of dealmaking; perhaps for this reason, announced public deals in the highly regulated telecommunications and financial services sectors are taking longer to close than are deals in other industries.
U.S. deal activity was encouraging, particularly at the high end. The number of deals rose 14 percent and deal value surged 80 percent compared with the first quarter, led by Eaton Corporation's acquisition of Cooper Industries plc for U.S. $11.46 billion in cash and shares, and Nestle's U.S. $12 billion acquisition of Pfizer's nutrition business.
UK activity also showed gains, brushing off on-going concerns about the Eurozone. While domestic M&A activity continued a modest growth trend which began in Q4 of last year, cross-border deals ? which regularly outpace domestic deals in the UK ? again made up the majority of activity, rising in the second quarter. Deals in the healthcare industry rose, while activity in consumer goods declined. The largest deal in the second quarter was Anheuser-Busch InBev SA / Grupo Modelo SAB de CV worth U.S. $20.1B.
"Global M&A activity in the first half was generally slower compared to 2011," said Steve Obenski, general manager, Business Law Solutions at Thomson Reuters. "Continued economic and political uncertainties in many parts of the world may further dampen activity in the coming months. However, the increased activity in the U.S. and UK is an encouraging sign. High levels of corporate cash reserves and untapped private equity funds mean that potential buyers will continue to be on the lookout for opportunities that make strategic sense."