Granahan: 'Mid'dling Market
June 1, 2009
Wall Street celebrated a much-needed boost in confidence last week, a barometer that not only ignited a stock market rally but also prompted many to call the unofficial end of the recession. Someone should let the M&A market know about this.
At about the same time we were told that consumers felt better than at any time since Lehman Brothers fell last year, Baird was offering a dramatically different view of the world, one in which dealmaking between companies was ... well, less than confidence-building. Some numbers:
- The number of global transactions fell 39.1% in April, the largest percentage drop in a single month this decade.
- Dollar volume was off 43.3% from the year earlier period.
- The middle market saw deal activity drop 33.1%, and dollar volume declined 54.8 percent.
For the very few remaining holdouts who argue that middle-market activity is hanging in better than among the bigger names, maybe that last stat will be the conclusive evidence needed to prompt a reconsideration.
Indeed, it turns out so far this year that the overall number of announced deals has fallen 32.2%, with dollar volume down 38.8%. Alas, for the middle market the numbers look even more depressing; deal count is down 35.7% and transaction value off 53% from the year earlier.
Of course, consumer confidence and M&A are two different beasts; a willingness to buy a pair of Nikes is not the same as agreeing to buy a shoe company.
But the middle market has its own version of an M&A confidence report in the form of a twice-a-year survey done by the Association for Corporate Growth. In the most recent survey, 45% said the current M&A environment is poor, and half said the recession and tight credit are the biggest impediments to growth. That part makes sense, much more so than the 12% of the 700-plus respondents who called the current dealmaking backdrop "good or excellent." (They must be distressed investors.)
But it is an optimistic crowd; 56% foresaw an increase in the number of transactions in the next six months; just 10% saw a falloff. The main catalyst in this turnaround would be healthier debt markets.
And the folks who actually have to pull the trigger on deals give some support to hope. The most recent survey of CEOs by the Business Council found one-third expecting U.S. business conditions to improve in the next six months; 16% looked for worsening conditions. Earlier this year the survey showed 9% expecting things to turn up within six months and about two-thirds expecting things to get worse.
More confidence, a better-looking stock market and a bounce in follow-on offerings all bode well for a more robust M&A market. It just hasn't happened yet.
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