M & A deals see a 32% dip in 2009

This week’s move by Exxon Mobil Corp to buy XTO Energy Inc for US$30 billion in stock may be a harbinger of activity to come in 2010 as companies flex their stronger share prices and release pent-up deal demand.

The XTO takeover followed other corporate mega-deals, such as the US$26 billion cash-and-stock deal for Burlington Northern Santa Fe by Warren Buffett’s Berkshire Hathaway, and Comcast Corp’s US$30 billion planned purchase of NBC Universal.

Deal value
M&A totals US$1.968 trillion so far in 2009, down 32 per cent from full-year 2008 and down 53 per cent from the record high in 2007, according to data from Thomson Reuters.

The US, which suffered a six-year low in mergers and acquisitions, still squeaked ahead of Europe for the first time in three years. Bankers expect flat-to-modest growth for 2010.

Financial sponsor
Further, global buyside financial sponsor activity dropped 45 per cent in 2009, hitting a seven-year low of $130 billion. There were only two financial sponsor deal over US$5 billion this year —— the takeover of Delphi Corp by creditors, and the acquisition of IMS Health Inc by TPG Capital and the Canada Pension Plan.

Private equity is sitting on US$400 billion in dry powder, or cash, while Fortune 1000 companies have more than US$1.8 trillion of cash on hand, an increase of $271 billion over last year, according to Ernst & Young’s Transaction Advisory Services.
As debt markets become more open, with banks willing to lend money for deals with higher leverage, private equity firms and corporations will begin to compete again on deals.