Global M&A Gets Boost, Despite Fourth Quarter Shortfall

Despite the lowest level of M&A in Europe in seven years and a disappointing fourth quarter, global dealmaking substantially outpaced last year’s volume, according to Thomson Reuters M&A review released Friday. However, the pace of deals for the fourth quarter will likely be a disappointment to experts predicting a year-end flurry of activity set to coincide with expiring tax provisions that favored sellers.

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Globally, the disclosed value of deals totaled nearly $2.5 trillion, marking an increase of 19% over 2009’s value tally of slightly less than $1.9 trillion. All told, American M&A for 2010 totaled $773 billion as of Dec. 14, the report said, marking an 11% rise compared to 2009.

However, in the U.S., the fourth quarter marked a slowdown compared to prior years. M&A activity in the U.S. the last quarter of 2010 produced deals with disclosed values totaling $529 billion, which represented a 17% fall from the prior quarter and the weakest fourth quarter since 2008.

2010 highlighted financial sponsors’ gradual return to the M&A landscape—more than a full year removed from the recession. The $57.8 billion in disclosed value represented by PE deals in the fourth quarter (while behind the pace of the robust third quarter) outpaced the same timeframe in 2009 by 12 percent.

But PE’s vulnerability to restrictive financing was highlighted by strategics’ dominance of the year’s biggest transactions. International Power plc, News Corp. and MetLife were among the strategic acquirers that topped off the list of the year’s 10 largest transactions. Not one of the biggest examples of M&A from 2010 featured a financial sponsor as a buyer.

Energy and power deals led all sectors by value through the year, generating $482 billion in deals, a 38% increase over 2009. The bulk of global energy M&A activity came within the U.S.; nearly half the total value of global energy deals ($226.2 billion) was concentrated in America.

Financial sponsors’ activity in the space drew multiple LBO shops to the Marcellus Shale region, where foreign strategics have also competed for assets—even taking out prior PE investments at hefty markups after abbreviated hold periods. Investors in the region, which stretches through the Northeast U.S., are betting on the effectiveness of new extraction techniques coupled with a rise in natural gas prices.

European M&A, no doubt hampered by lingering concerns over sovereign debt issues, touched a low for seven years. Deals for the fourth quarter of this year were on pace with 2009’s, but fell from the third quarter of 2010 by 13 percent. Emerging markets, however, were a different story. M&A in emerging markets hit an all-time high, generating $378.5 billion in deal activity year-to-date as of December 14.

Goldman Sachs led both U.S. and worldwide M&A advisory league tables in terms of deal value and Morgan Stanley won Europe. Morgan Stanley also advised on more transactions globally than Goldman, placing second to the investment bank in terms of disclosed deal value.