M&A flat so far this year, even with mammoth Verizon deal
By Michael Erman and Soyoung Kim
NEW YORK (Reuters) - Dealmaking around the world was basically flat over the first nine months of the year, a disappointing level given the $130 billion Verizon Communications Inc VZ.N transaction that bolstered mergers and acquisition volumes in the third quarter.
With ongoing uncertainty about economic recoveries around the globe, the specter of rising interest rates as well as increasingly activist investors clamoring for a return of capital to shareholders, top investment bankers and lawyers do not expect a significant pickup in deal activity soon.
"Between increased rates, and, at times, unpredictable deal-approval regulatory framework, and continued debt ceiling issues, we're back in the annual dance of uncertainty," said Paul Parker, head of global corporate finance and M&A at Barclays. (BARC.L: Quote)
"The silver lining is that the Fed has made it clear that they're not going to pull back on easing near-term. And therefore, companies probably do have a window to take advantage of the rate environment which is still historically low," he said.
Some companies have been taking advantage of cheap financing to make cash bids. Verizon's mammoth deal to buy Vodafone Group (VOD.L: Quote) out of its U.S. wireless business, history's third largest corporate deal announcement, illustrates this trend.
The conventional wisdom that the U.S. Federal Reserve might taper its bond buying, which would have resulted in higher interest rates, could have spurred some companies to do some of these deals before the Fed's September meeting.
"The prospect of a taper seemed to crystallize for some buyers the impact higher rates would have on the economics of cash transactions," said Anthony Whittemore, co-head of mergers & acquisitions for the Americas at Deutsche Bank (DBKGn.DE: Quote).
Ironically, he said the possibility that the Fed may wait months until a taper could lull some companies back into inactivity. Continued...