How did U.S. public M&A deals fare in 2010? |
|
|
28 Feb 2011 |
|
|
FactSet’s Michael Benkert, Research Manager, FactSet Mergers, explores the recovery and trends of the U.S. public M&A market.
The financial markets have been anticipating an M&A comeback in the aftermath of the 2007 credit crunch for some time. On one hand, the stock markets have come roaring back since the financial tumult of September 2008, with a recent close on the Dow Industrials of more than 12,000 points in early 2011. On the other hand, the M&A market had survived the post-credit crunch period, possibly on a starvation diet if you will. Mega-merger deals still continued, but obviously not at the same pace as years past. While the stock markets have been building momentum toward a comeback, what can be said about any recovery in the U.S. public M&A market in 2010?
The results for 2010, however, reflect a near convergence of average deal value for both strategic and financial buyers. The average strategic deal size decreased to less than $1.1 billion from the $1.9 billion in 2009. Conversely, the average financial buyer deal size made a striking comeback with an increase to $762 million from $293 million in 2009. What forces could be driving the respective value trends for strategic and financial buyers? Is it permissible to believe that there was a moderate recovery during 2010 as deal-making picked up, but the M&A activity of financial and strategic buyers went in different directions?
Note: The data used in this research were based on U.S. targets only and deals with a merger agreement filed. Image source: FactSet MergerMetrics, http://www.factset.com/mergers |
Average deal sizes of friendly U.S. public deals were fairly stable between 2008 and 2009, with an average transaction value of $1.54 billion in 2008 and $1.61 billion in 2009. Strategic buyer deals recorded an average value of $1.73 billion in 2008 and nearly $1.9b in 2009. And while the general trend in deal value for financial buyer deals also remained steady between 2008 and 2009, the average value was significantly lower at $304 million in 2008 and $292 million in 2009. 
In 2008, strategic buyer deals valued over $500 million had outnumbered their financial buyer counterparts by a margin of 11 to 1, or 56 strategic deals versus 5 financial deals. The year 2009 revealed that the volume trend of deals valued over $500 million fell to 44 strategic deals and 3 financial deals, culminating in a margin of nearly 1 financial buyer deal for every 15 strategic deals. However, in 2010, the transaction value quality of financial buyers closed the gap against strategic buyers by presenting 21 transactions valued over $500 million each versus 72 strategic buyer deals over that value, or a ratio of only 3.5 strategic to financial buyer deals in that year. The chart below suggests that the markets for deals valued over $500 million were picking up across the board, but financial buyer deals were gaining traction at a greater rate in 2010. Time will tell if this deal trend continues into 2011 with any general continual recovery of the U.S. economy. 
