M&A feels the credit crunch

M&A deal volumes are down significantly in the first quarter 2008. This doesn't come as a surprise to anyone, I am sure, so it should be put in perspective.

Of course, the final volumes for the quarter will not be available for another week, but with the Easter holidays underway, it isn't likely the final figures will change dramatically.

What will they look like? According to preliminary figures widely reported from Mergermarket, the number of deals announced in the first quarter will be almost 30% down not just when compared to the last quarter of 2007 but also when compared to the first quarter of 2007 (sothe year-over-year comparison). And in historical terms, it's the slowest since the first quarter of 2004.

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The biggest years in M&A history

This should be kept in perspective. We've just been through in 2006 and 2007 the biggest M&A years in history. The drop to 2004 levels still puts us at a deal volume figure that would have been hailed as huge volume' 10 years ago. M&A volumes were increasing in 2004 and thus this volume four years ago was part of an upswing, while this current quarter is now part of a downturn. So perceptions are different. Very different.

Market turmoil in perspective

Given the current turmoil in the markets, volumes will likely continue to come down as uncertainty certainly is not good for M&A, especially with the inability to fund deals with as much debt as previously. Naturally, there are always some bottom-fishers, and they will love the current market although I suspect many of those will wait for even further declines before acting.

Interestingly, advisory firms are still hiring M&A bankers. Good deals will still need to be done. Volume levels similar to 2004 still make a VERY good market.

Posted by Scott Moeller on his Intelligent Mergers blog, 24/03/2008