A total of 2,547 deals worth an aggregate $405.9bn were completed globally during the first quarter, 10.3% behind the figure for the same period last year, according to M&A research firm Mergermarket.
However, with record amounts of capital on balance sheets it is likely that there will be an uptick in deal volume, as stakeholder pressure mobilises managers into putting the capital to work.
Thomas Becket, CIO of Psigma, said: “The drop is a reflection of the fact that confidence is still low, especially in the eurozone.
“However, there are definite signs of excitement in the market, and following the announcement of the Buffet/Heinz deal, investors are already thinking about and speculating on the next big deal.
“We are likely to see companies pursuing growth through the purchase of other companies. In the US, economic confidence is much higher, and firms there are able to bid on relatively cheaper European firms.”
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The home market
The weak pound will also make British businesses more attractive to overseas investors, and it is likely to boost profits in industrial businesses with global interests.
Colin McLean, managing director at SVM Asset Management, said: “The extremely low cost of finance could make even large deals possible. Indeed, the enormous scale of recent US bids, including Heinz and Dell, suggest few British companies would be too big to buy and FTSE 100 companies like Weir Group and Aggreko, with growing international interests, could get attention.”
Becket, meanwhile, is an investor in the Rothschild Europe Synergy Fund, which seeks to invest in undervalued European companies that could be a target for an acquisition. Around 43% of the fund’s assets are currently invested in UK equities and two of its top five holdings – Sage and Unilever – are FTSE 100 companies, while FTSE 250 constituent Invensys is its third largest holding.
Becket added: “M&A activity is likely to increase across the board, but the industrials and materials sectors are particularly likely to see an uptick.”
Private equity contributions
The abundance of private equity funds that raised capital during the boom in 2007 are also reaching the end of their life cycle, which will provide a further boost to M&A activity as they bring companies to market.
Activity in the US private equity buyout market is particularly strong, with US-based buyout values accounting for a record 69.6% of total private equity-backed buyout M&A in the first quarter of the year.
European private equity-backed buyout activity was more subdued, with a total deal value of $17bn.
