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. 
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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. 
|Number of Deals||Q1’11||Q2’11||Q3’11||Q4’11||Q1’12||Q2’12||Q3’12||Q4’12||FY11||FY12|
|Bank of America||54||67||76||65||40||69||45||77||262||231|
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|
|Bank of America||2,229||1,748||840||1,454||1,464||1,313||1,505||1,419||1,525||1,428|
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.Notes: