2010 Could Be A Harbinger of An Explosive M&A

Though merger and acquisition activities globally declined in 2009 with deals worth USD 3.6 trillion being announced during the year, down by 15 per cent over the year-ago period, the activities gained traction globally in the fourth quarter of 2009, witnessing a rise in value by 46 per cent to $739.6 billion.

Even though 2010 has only just begun, we've already seen some big ticket merger and acquisitions action. Novartis ((NYSE:NVS)) agreed to pay $28 billion for the rest of Alcon (NYSE:ACL) it doesn't already own.

Nestlé has announced that it is buying the pizza sector from Kraft (NYSE:KFT) in the USA and Canada, for 3.7 billion dollars (2.5 billion euros). In a $275 million deal, mobile advertising delivery company Quattro Wireless has been acquired by Apple (NYSE:AAPL).

Rumors on Wall Street that General Electric (NYSE:GE) will take over A-Power Energy Generation (NASDAQ:APWR) for over $30/piece, which could come before the Chinese new year, may actually be an awful deal for investors of A-Power.

"Oil and gas companies will increase acquisitions in the first half of 2010, particularly in Asia," said Adam Waterous, Scotia Capital’s global head of investment banking.

“The first half specifically will be a very active period,” Waterous, 48, said today in Calgary telephone interview.“ There are a number of large companies that have made decisions to rationalize their businesses.”

Waterous, who joined the investment-banking arm of Bank of Nova Scotia (NYSE:BNS) when Canada’s third-biggest bank bought Calgary- based oil-and-gas advisory firm Waterous & Co. in 2005, said many firms are restructuring their assets, which could lead to more stock sales and financing activity. Source

Independent firms will help shape the mergers and acquisitions scene in the asset management industry in 2010, according to investment bank Jefferies & Co. This new trend, based on several deals in the fourth quarter, some involving independents, would be a new phase in the M&A landscape which has, until now, been largely dominated by mega-deals involving large corporations and multi-billion dollar contracts.

According to Zephyr, a global deal tracking firm, 2009 was another difficult year for those involved in M&A. Global deal value rescinded at a faster rate than volume, which was down just 2 per cent at 64,981 deals from 66,472 in 2008. Globally Western Europe saw the largest annual decline in M&A value with a 25 per cent drop to USD one trillion.

But, the Q4 of 2009 recorded $739.6 billion in global M&A volume, which was $150 billion higher than any other quarter in 2009. "The relatively high volume of deals recorded in the fourth quarter of 2009 hints at a resurgence of M&A activity for the new year," according to deal tracking firm Dealogic.

In fact, in its fourth quarter review of M&A and capital markets activity, Thomson Reuters reveals US targets accounted for 36% of global M&A activity, with $705bn in deals, while M&A was most active in the financial sector, with $390bn in deals, although this figure represents a five-year low for that sector.

"The future looks encouraging for M&A, with strong indicators in the last quarter," commented Neil Masterson, global managing director of investment banking at Thomson Reuters.

A recent article in MoneyWeek claimed that many of the key market fundamentals required for an M&A upturn are now in place, with banks willing to lend money again and many organisations holding a large amount of cash on their balance sheets.

North American M&A in 2010 is also looking more promising. After having dropped to a six-year low at the beginning of 2009, deal activity picked up steadily throughout 2009, suggesting a return to ‘normality’ for North American M&A deal activity for 2010.