M&A activity will likely stay depressed for much of 2009 – but significant deal opportunities can still be grasped by well capitalised companies around the globe. History shows, after all, that shrewd businesses pick up attractively-priced assets well ahead of an eventual economic upturn.
When the deal cycle finally turns, bidders will face a subtly different set of communication issues from those they have grappled with in the boom years. Executives, for example, will need to take particular care to reassure jittery boards and shareholders that they are embarking on the right course of action and that they have identified the appropriate risks in the current environment; they will want to demonstrate convincingly that they have adequate funding and a balance sheet that will take the strain; and they will be wise to adapt their strategy to the newly enhanced government role in our economic life.
The exact timing of a return to a more active level of bid activity remains highly uncertain. But, as advisers to many domestic and international companies that have successfully acquired other businesses in bad economic times as well as good, we believe that a sound communications plan must reflect the changed circumstances of M&A.
M&A cycles Many commentators pronounced that M&A had reached a high water mark in late 2007 when BHP Billiton announced its intention to bid for its fellow miner Rio Tinto. Interestingly, volume figures released by the information group Mergermarket in January 2009 show that the peak actually came six months earlier in a period marked by Royal Bank of Scotland’s fateful bid for ABN Amro. At the start of 2009 we were therefore already 18 months into an M&A downswing whose start coincided with the onset of the credit crunch and the sharp contraction in the leveraged finance market. The data from Mergermarket, moreover, shows that the M&A market of 2008 was not uniformly depressed. Sure, transactions declined by roughly one third and the 29 per cent drop in the last quarter was the worst fourth quarter result in five years. And the pipeline of M&A as measured by announced transactions to completed transactions is the lowest it has been for a very long time.
That said, Europe in 2008 had a bigger share than the United States of the larger transactions in financials and energy – sectors that respectively accounted for 25 per cent and 18 per cent of the total value of all transactions. And even though there was a sharp fall in the last quarter, mid-market sized transactions (no doubt reflecting relatively easier financing arrangements) generally held up better across the world.