GLOBAL mergers and acquisitions (M&A) may rebound from a four-year low next year, rising roughly 15 per cent to about $2.5 trillion (£1.5 trillion) to $2.7 trillion as the dealmaking environment improves, strategists at UBS said.
Any such pick-up would be welcome for shareholders — UBS said investors have historically received bid premiums of 30 to 40 per cent — and for banks and law firms, who can reap big fees for helping structure deals. Global M&A has plunged 40 per cent in the year to 29 October, according to Thomson Reuters data, with $1.55 trillion of deals announced. In 2007, the peak of the last merger boom, full-year M&A topped $4.28 trillion.
UBS strategists, led by Jeffrey Palma and Daniel Stillit, said many companies were generating significant cash flow, while sluggish economic growth meant companies would often have to buy growth rather than expand organically.
“The biggest driver of an increase in activity is likely to be the increase in risk appetite in equity markets and in the boardroom, a return to earnings growth and profitability by World Inc and a backlog of pending asset disposals,” they wrote in a note. “Credit conditions are also supportive and we expect private equity and bank lending to pick up at some point next year.”
M&A has been stymied this year as the credit crisis made financing hard to obtain.