Life on the High Seas: More Clear Sailing or Choppy Waters Ahead for the Deal Market?
We recently released our latest quarterly Deal Flow Indicator (DFI), which shows further positive trends in the M&A deal market during Q3 2010. The DFI reports a continuing upward trend in deal activity since the first quarter of last year, with Q3 2010 deal activity up by 68% over the Q1 2009 low point. With the exception of the slow growth observed in Q1 of this year (two percent), deal activity has been steadily rising by an average 10% per quarter since Q1 2009.
While volume has been steadily increasing, other sources such as Thomson Reuters and mergermarket have reported inconsistent levels for the value associated with these deals. However, 2010 is still shaping up to be a year of solid valuation, with mergermarket reporting that the value of global deals for the first three quarters of 2010 was up almost 25% over the same period for 2009. Multiple sources have reported large increases in cross-border activity as well.
Companies continue to be cash flush without many high return outlets for investment. It would appear that the best investment in 2010 has been picking up companies. The fragile and volatile market conditions have also resulted in a significant uptick in cross border deals. mergermarket estimated that cross border activity is up 109% over the same period from last year. This is hugely indicative of the new opportunities emerging that companies are taking advantage of.
Many people in the marketplace speculate that well established industry players that made strategic divestitures during the last year are now in an ideal position to make strategic cross-border acquisitions. However, without more rapid signs of recovery, valuation gaps could widen again, leaving anything but the best deals adrift.
For the time being, it looks like companies will continue to make deals as long as they are there to be made. I’ll leave you with an old quote: “A ship in harbor is safe – but that is not what ships are built for”.