Cautious optimism for global M&A after third-quarter hike in deal value
11 October 2010 | By Gavriel Hollander
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A sluggish global M&A market is showing signs of life, according to latest data on third-quarter deal activity.
The value of announced deals in the three months from the start of July in the UK, European and US markets is greater than for any other quarter this year and is also up on the same period last year, according to figures from Thomson Reuters.
The uptick has been particularly marked in the domestic market, with total deal value more than doubling compared with Q2 2010 and Q3 2009.
However, overall dealflow has not shown the same level of improvement, with fewer deals announced than in the previous three months and only marginally more than this time last year.
A total of 856 deals with UK involvement were announced in the last quarter, valued at $166bn (£104bn). Last year saw 839 deals totalling $61bn announced in the same period.
Slaughter and May led the way for UK advisers, acting on 19 transactions worth £67bn. The City firm has taken over from Herbert Smith, which led the rankings in Q3 2009, and has ousted Skadden Arps Slate Meagher & Flom from its Q2 top spot.
Slaughters’ position was boosted by a role on by far the biggest deal to be ann-ounced in the last quarter - BHP Billiton’s $43bn bid for PotashCorp in August. The megadeal also provided a rankings fillip for Cleary Gottlieb Steen & Hamilton and Canadian firm Blake Cassels & Graydon.
Despite his firm’s position at the top table, Slaughters M&A chief Steve Cooke remains guarded about predicting a more widespread recovery in the market, pointing at deal volume as a better indicator than value.
“You need to look at what’s caused the blip in value,” says Cooke. “It’s likely to be one or two big deals.
“I suspect this isn’t indicative of a greater pick-up. I’d hesitate to say it’s the first sign of an M&A tsunami. I think things are gradually improving but it’s an uncertain environment.
“We’ve been lucky because we’ve been busy for the past couple of years, and have had a big share of the limited pool of work.”
Globally, the improvement has been less steep. The third quarter saw deals valuing $680bn announced, up from $471bn last year, but the total number of transactions fell slightly, from 9,952 to 9,688.
Skadden retained its place at the head of affairs, pushing Slaughters down into second place in the global rankings. The US firm acted on 59 deals worth $95bn, representing a flat performance against Q2 but up from 45 deals worth $82bn in Q3 last year.
Of the other UK firms featured in the global top 20, Linklaters was ranked sixth and Clifford Chance 11th. Both magic circle firms benefited from roles on the second biggest deal announced in the quarter - International Power’s $25bn play for GDF Suez.
Oil and gas, and energy and infrastructure have been the sectors that have held up best over the past few months, according to Clifford Chance corporate partner and energy specialist Simon Tinkler.
“What we saw over the summer was a steady increase in work and we’re expecting the same for Q4,” he comments.
Freshfields Bruckhaus Deringer lost ground in terms of value and volume, but global corporate head Ed Braham is one of a number of City M&A partners who feel that recent months have heralded the start of a recovery, albeit a slow one.
“There was definitely a pick-up over the summer,” says Braham. “Energy and natural resources was a big part of what’s been going on, but overall the market’s still pretty thin.
“There’s been a marked step-up in activity in the past month - that’s pretty much across the board, but I’d still be cautious. It feels to me that we’re in a better place than we were 12 months ago.”
DLA Piper sits just outside the top 20, having also seen a spike in value while deal volume has stayed relatively flat. Head of corporate Charles Severs believes that the increase in the value of deals is still an indicator of renewed confidence.
“Deals are getting done and they’re bigger deals,” says Severs. “You have a lot of people with a lot of money and people have now got the confidence to do deals.”
Severs adds that his firm has completed two of its biggest ever international M&A transactions in the past six months alone, advising Cheung Kong Infrastructure on its $9bn purchase of a unit of EDF, and Banco Santander on last month’s acquisition of 70 per cent of Polish bank Zachodni from Allied Irish Bank.
“Companies haven’t got the bandwidth to do 15 small deals,” adds Severs. “Instead, they want to do one or two big ones.”