💎 Fed’s first rate cut since 2020 set to trigger market. Find undervalued gems with Fair ValueSee Undervalued Stocks

UBS sees global M&A rising 15 percent in 2010

Published 11/02/2009, 12:11 PM
Updated 11/02/2009, 12:15 PM

* Risk appetite, profitability, capital markets improving

* Backlog of disposals will also bolster activity

* Regulation may spur deals in healthcare, financial sectors

LONDON, Nov 2 (Reuters) - Global mergers and acquisitions (M&A) may rebound from a four-year low next year, rising roughly 15 percent to about $2.5 trillion to $2.7 trillion as the dealmaking environment improves, strategists at UBS said.

Any such pick-up would be welcome for shareholders -- UBS said investors have historically received bid premiums of 30 to 40 percent -- and for banks and law firms, who can reap big fees for helping structure deals.

Global M&A has plunged 40 percent in the year to Oct. 29, according to Thomson Reuters data, with $1.55 trillion of deals announced. In 2007, the peak of the last merger boom, full-year M&A topped $4.28 trillion.

UBS strategists, led by Jeffrey Palma and Daniel Stillit, said many companies were generating significant cash flow, while sluggish economic growth meant companies would often have to buy growth rather than expand organically.

"The biggest driver of an increase in activity is likely to be the increase in risk appetite in equity markets and in the boardroom, a return to earnings growth and profitability by World Inc and a backlog of pending asset disposals," they wrote in a note on Monday.

"Credit conditions are also supportive and we expect private equity and bank lending to pick up at some point next year."

Mergers have been stymied this year as the credit crisis made financing hard to obtain and future business performance tricky to forecast, and sidelined the private equity firms that accounted for a large slice of activity in the boom years.

But some recent deals driven by strategic motives, such as Kraft's informal 10 billion pound ($16.4 billion) offer to buy British chocolate-maker Cadbury, have sparked optimism that the trough may be past.

Solid balance sheets made healthcare and tech-sector dealmaking likely, while the prospect of tougher regulation was likely to spur M&A among banks, as well as pharmaceutical companies, UBS said.

UBS forecasts world gross domestic product (GDP) will grow just 3.6 percent in 2010 and 3.7 percent the year after.

Last week Societe Generale said the conditions were in place for a "strong M&A cycle" driven by cash-rich companies in search of productivity gains, with large risk premiums versus government bonds suggesting equities remain "very cheap". ($1=.6110 Pound) (Reporting by Quentin Webb; Editing by Hans Peters)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.