Allen & Overy’s M&A Index reveals mixed signals in third quarter of 2013

According to Allen & Overy’s latest M&A Index, the state of the mergers and acquisitions (M&A) market has given mixed signals in the third quarter, with a total of 458 deals announced — 22 per cent lower than the same period last year.

The index also revealed a 13 per cent increase in the value of transactions to $529bn (£329bn), largely helped by the $130bn sale by Vodafone of its 45 per cent stake in Verizon Wireless.

There were also signs of capital flows shifting from emerging to more mature markets.

Emerging markets attracted less interest from buyers in developed countries, who have put deal making on hold to assess the extent of the economic slowdown in those regions and the impact of capital outflows resulting from the US Federal Reserve’s decision to taper its bond-buying programme.

In the first nine months of 2013, the number of acquisitions made by US and European companies in emerging regions dropped by 35 per cent, while the value of deals was down 43 per cent.

Concerns in the US over its budget and debt ceiling, on top of the tapering hiatus, have caused disquiet in the markets; however, the Verizon acquisition and Microsoft’s acquisition of Nokia’s mobile handset business for $7.2bn are evidence of confidence in US boardrooms.

The UK ranked as the second most attractive market for foreign buyers (with 63 deals worth $58.5bn), signalling confidence in the UK recovery, underpinned by the certainty of monetary support following the change of leadership at the Bank of England.

Andrew Ballheimer, co-head of the global corporate practice at Allen & Overy, said: ‘The numbers suggest that there is a reversal of capital flows from emerging to more mature markets; however, we believe this trend will be short lived, as chief executive officers remain convinced that their companies need to be present in the emerging markets for long-term growth.

‘Investors seem to have now accepted that Fed support for the economy will ease as economic recovery slowly gathers pace and we hope that M&A activity will pick up pace in the final three months of the year and into 2014.’