Super-Sized Deals Make A Comeback As The Global M&A Industry Recovers

by Trefis Team
+2.38%
Upside
181
Market
185
Trefis
GS
Goldman Sachs
Rate   |   votes   |   Share

The first half of February witnessed a barrage of super-sized deals in the U.S., with Dell’s $24 billion deal to go private, Berkshire Hathaway’s (NYSE: BRK.A) $23 billion acquisition of Heinz (NYSE: HNZ), Comcast’s (NASDAQ: CMCSA) $17 billion buyout of GE’s (NYSE:GE) stake in NBC and United Airways’ (NYSE:UAL) $11 billion merger with American Airlines. As companies set aside their fears and write multi-billion dollar checks to grow inorganically, there can be no doubt that the global mergers & acquisition (M&A) industry has finally come out of the shadows of the 2008 economic downturn. While there has been a notable spike in global M&A activity in terms of the number of deals since Q4 2012, most of these deals were small- to mid-sized.

The increased enthusiasm among companies in the U.S. as well as around the globe to pursue expansion plans that they had shelved when the economy turned sour is good news for the world’s biggest investment banks, including Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM), Morgan Stanley (NYSE:MS), Barclays (NYSE:BCS) and Credit Suisse (NYSE:CS). JPMorgan in particular stands out here as it was the adviser in each of the deals mentioned above – allowing it to race to the top of the M&A advisory league table for the year-to-date period – as compiled by Thomson Reuters. [1]

See the full Trefis analysis for Goldman SachsJPMorganMorgan StanleyBarclaysCredit Suisse

M&A Deal Numbers Recovered Substantially Last Year…

The global demand for M&A advisory services fell rapidly towards the end of 2011 when debt-related trouble in the Eurozone was at its peak. The table below shows the number of M&A deals completed by the world’s biggest investment banks in each quarter over the last two years and is based on Thomson Reuters’ Deals Intelligence data. [2]

Number of Deals Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 FY11 FY12
JPMorgan 58 61 73 62 37 42 53 60 254 192
Goldman Sachs 26 39 46 44 32 49 87 67 155 235
Credit Suisse 41 56 45 57 29 48 41 66 199 184
Bank of America 54 67 76 65 40 69 45 77 262 231
Barclays 61 42 41 72 40 58 44 74 216 216
Citigroup 74 88 96 98 47 101 89 115 356 352
Deutsche Bank 52 81 76 76 49 65 65 68 285 247
Morgan Stanley 84 90 85 101 55 70 102 93 360 320
UBS 57 64 73 60 38 44 47 47 254 176
Total 6,685 7,481 7,695 7,817 6,222 6,948 7,041 8,243 29,678 28,454

It must be kept in mind that this table shows the number of deals completed in a quarter as opposed to the number of deals announced. As deals normally take one or two quarters to go through, the trend represented by the numbers would be delayed by around that much when compared to global economic conditions. Hence, the drastic fall in the number of deals completed in Q1 2012 is a direct result of the crisis in Europe which began in Q3 2011.

The improvement in the M&A industry is unmistakable here with well over 8,000 deals closing in Q4 2012 – one of the highest since 2008 and a 32% jump from Q1 2012 figures.

… Although Deal Sizes Continued To Decline

The table below represents the average M&A deal size for each of the world’s largest investment banks in a quarter, obtained by dividing the value of deals for a period by the number of deals completed.

Avg. Deal Size Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 FY11 FY12
JPMorgan 2,304 2,293 1,054 1,623 1,437 1,578 1,816 1,697 1,786 1,645
Goldman Sachs 2,133 2,057 1,360 1,655 1,607 1,604 1,405 1,806 1,774 1,620
Credit Suisse 1,088 2,089 1,044 906 1,371 2,213 1,658 940 1,286 1,535
Bank of America 2,229 1,748 840 1,454 1,464 1,313 1,505 1,419 1,525 1,428
Barclays 2,615 2,378 1,253 1,125 1,597 2,650 793 1,069 1,728 1,369
Citigroup 3,856 1,948 927 1,026 1,020 1,568 1,644 998 1,846 1,294
Deutsche Bank 997 2,549 1,272 1,012 1,089 937 1,377 1,439 1,356 1,227
Morgan Stanley 2,732 2,054 1,225 1,164 1,324 1,409 756 1,408 1,767 1,186
UBS 1,663 1,985 707 1,238 1,148 731 1,007 565 1,369 850
Group Average 2,180 2,122 1,076 1,245 1,340 1,556 1,329 1,260 1,604 1,350

To capture the trend in the industry, we also show the average deal size for this group of banks. As is evident, the increase in the number of deals came with more small-sized deals globally. Because of this, the average deal size for the group fell over the last three quarters of 2012.

The table above also gives another interesting piece of information – JPMorgan and Goldman Sachs have the highest average deal size figures among competitors for the quarters shown here. It would, hence, be accurate to conclude that these banks are the most preferred to perform lead advisory roles when companies around the globe are looking to go for a large-sized deal.

With a big start for the M&A industry this year, we expect things to continue full steam ahead in what we believe will be a year with not only a large number of deals but also large-sized deals.

Submit a Post at Trefis Powered by Data and Interactive ChartsUnderstand What Drives a Stock at Trefis

Notes:
  1. M&A Deals, Thomson Reuters, Feb 14 2013 []
  2. Quarterly Review, Deals Intelligence []
Rate   |   votes   |   Share

Comments

Name (Required)
Email (Required, but never displayed)
Be the first to comment!