Merger and acquisition activity hits 10-year low: Report

Merger and acquisition activity has plunged to the lowest level in 10 years with the trend reflected at the smaller end of the market according to industry experts.

Thomson Reuters data published today shows Australian companies are putting deals on the back-burner because of the uncertain economic climate with the first quarter of 2012 expected to produce a 28 per cent drop year on year in the number of announced deals, bringing the total down to 329.

If the forecast holds true, it would represent the lowest number of deals since the second quarter of 2002.

Just as the number of deals has dropped, so has the average deal size which has fallen 29 per cent to $US106.9 million ($101.7 million) in the past 12 months.

Thomson Reuters has found that the total value of announced deals that involve Australian companies is down 51.4 per cent year on year to $US19.4 billion in the first quarter of 2012, which puts 2012 on track to be well behind the 2011 total of $US173 billion in deals.

The Thomson Reuters figures correlate with the activity levels Tony Bancroft is seeing as a partner who specialises in mergers and acquisitions at the law firm Gilbert + Tobin.

“Since the beginning of this year we think there has been a slight rise in the level of activity and interest, not back to 2007 levels but we are now more confident about the current year,” says Bancroft.

“I think typically in Australia the busiest time in the market is the middle of the year with deals getting announced in July, August and September. 

“I think the difficulty is that there is still a lack of confidence in the market.  The European crisis is still not over and that leads to a lack of activity.

“Activity tends in M&A to beget more activity.”  

Bancroft said the downturn in mergers and acquisitions was also reflected in small and medium enterprises (SMEs).

“In terms of SMEs there probably has been a downturn in those non-public acquisitions because the larger companies who might be acquiring the smaller companies are still to some extent sitting on their hands”, he says. 

“People selling smaller businesses think prices will improve and so they are waiting to sell. 

“There is a lack of confidence permeating the whole economy which is slowing activity down. “