Forced sales demanded by creditors and government-brokered transactions may provide the only consolation for bankers in what promises to be the slowest year for mergers and acquisitions since 2004.
Bankers at Barclays Capital and Nomura Holdings Inc said the value of deals may decline 30 percent next year to about US$2 trillion. Takeovers so far this year are down 36 percent from the same period last year, reducing the fees paid to banks by 34 percent to an estimated US$63 billion, data compiled by Bloomberg and New York-based research firm Freeman & Co showed.
“These are the worst conditions for many years, as bad as or worse than the early 1990s, perhaps as bad as the mid-1970s,” said Philip Keevil, 62, senior partner in London at Compass Advisers LLP and former head of European mergers at Salomon Smith Barney Inc.
More than a third of the 20 biggest acquisitions announced in the fourth quarter were government-induced, Bloomberg data showed. The Dutch government took control of Fortis’s assets in the Netherlands after Belgium’s largest financial-services company ran out of short-term funding in October. Paris-based BNP Paribas SA, France’s biggest bank, acquired units from Brussels-based Fortis in Belgium and Luxembourg. The Kremlin is pushing for banks to merge, including the possible combination of MDM Bank and Ursa Bank to form Russia’s second-largest private lender.
“Governments will be acting as arbitrators and twisting people’s elbows if necessary,” said Frederick Lane, 59, a former co-head of mergers at Donaldson, Lufkin & Jenrette who now runs Boston-based Lane Berry & Co.
“In Europe, any major consolidation is likely to come from government-sponsored rescues,” analysts led by Stefan Slowinski at Paris-based Societe Generale SA wrote in a note to clients last week. “Banks that can think about expanding outside of government rescues will do so on a piecemeal basis.”
Societe Generale offered an even gloomier forecast than the ones from London-based Barclays and Nomura in Tokyo: They say completed deals next year may drop to 4,000 from 8,000 this year, the lowest level since 1995.
A combination of declining revenue and rising borrowing costs may drive companies to shed assets at low prices. Buyers are picking over the remains of Circuit City Stores Inc, the second-largest electronics retailer in the US, and century-old London-based Woolworths Group Plc after both collapsed last month.
The collapse of New York-based securities firm Lehman Brothers Holdings Inc, raised corporate borrowing costs to the highest level since at least 1999, indexes compiled by Merrill Lynch & Co showed. That has limited the appetite of companies for mergers and acquisitions and jeopardized the ability of some to repay debt maturing next year.