Mergers and acquisitions: global trends

It might not come as a massive surprise to eagle-eyed readers of the financial press, but throughout 2008, the volume of mergers and acquisitions deals took a turn for the worse. The really bad news is that they don't look like recovering anytime soon.

In the first three quarters of 2008, the story was that the record levels of M&A recorded during 2006 and 2007 were unable to continue such heights in the face of increased economic gloom, but they weren't that bad.

However, the total volume of worldwide mergers and acquisitions throughout all of 2008 was $2.9trillion - or a decrease of 29.6% on 2007, according to figures from Thomson Reuters.

More tellingly, perhaps, was the fact that the fourth quarter of 2008 witnessed a 34.6% slump in volumes from Q3, and a 37.1% decrease from the same period in 2007. Things are clearly getting worse.

So, for investment banks (and graduates looking for a job within one), the message is that M&A revenue is likely to be down for some time to come. A recent research document by analysts at BersteinResearch predicts that 2009 is likely to be the peak of misery for advisory fees gained through M&A activity - 25% less than 2008, which was already 13% down on 2007.

The research suggests it will be 2011 before the highs of 2007 are likely to return.

Deals like the $48.8bn acquisition of Merrill Lynch by Bank of America and Lloyds TSB's takeover of HBOS provided some activity towards the tail end of last year. Indeed, financials, combined with the consumer staples and energy and power sectors accounted for more than half the M&A in 2008, according to Thomson Reuters.

What's more, state investment in the financial system has accounted for a significant chunk of worldwide M&A activity - 13.5%.

Germany has pulled off something of a coup by being the only country to actually record an increase in M&A activity last year - up by nearly €7bn on 2007, according to figures from mergermarket.

Aside from that, it's all looking pretty gloomy, with Europe as a whole slipping by 27.3% on 2007, the US by 37.2%, Japan by 37.9% and Africa and the Middle East faring particularly badly with a drop of 39.6%, according to Thomson Reuters. The Asia-Pacific remained relatively robust, shrinking by just 8.7%.

The problem is, as the financial crisis looks increasingly contagious and we're subjected to a seemingly never-ending torrent of bad news, buyers have understandably become more cautious. Deals worth a combined $89.5bn collapsed during September last year alone, according to data provider Dealogic. And big-ticket acquisitions, such as energy firm EDF's $4bn bid for Constellation, have been shelved.

The top five firms advising on M&A deals globally are Goldman Sachs, JPMorgan, Citi, UBS and Morgan Stanley.

This article was last updated on 2 February 2009

Click here for an explanation of the M&A sector.