Global merger activity slowed in the first quarter 2009, dropping 32% to total $561.1 billion, according to Dealogic.
The drop might not come as a surprise, as the economic turmoil drags on and credit markets remain solidly frozen. The number of deals were down 29% to 7,554 for the quarter.
Targeted M&A activity in the U.S. fell 42% to $216.4 billion for the quarter -- and even then, it could have been lower if it hadn't been helped by the U.S. government's bailout program. The finance industry led the pack with $132.4 billion -- getting a sizable boost from the government’s $25 billion cash injection in Citigroup (C).
Health care M&A activity accounted for 23% of the global total bringing in $128.1 billion.
A key contributor was Pfizer’s (PFE)deal to acquire the drugmaker Wyeth for $68 billion. The New York-based company issued more than $13 billion in debt to help fund the purchase. The deal valued Wyeth shares at $50.19 each and Pfizer agreed to pay $33 in cash and 0.985 share in Pfizer stock for each Wyeth share.
Activity in Europe paints an even bleaker picture, with volume down 42%, totaling $181.6 billion, from 314.3 billion in the same quarter a year before.
“When the economy starts to rebound, activity will be the first thing to pick up,” said Marc Pado, U.S. market strategist at Cantor Fitzgerald.
According to Pado, once capacity utilization hits about 90%, merger activity will pick up -- and it's just around 70% right now.
“Capacity utilization over 90% means you have to expand and acquisition is a lot cheaper than growing organically.”
Initial public offerings are also experiencing a drought with only two successful offering in the past eight months. Mead Johnson (MJN) spun off parent company Bristol Myers Squibb (BMY) after raising more than $700 million. Grand Canyon Education (LOPE) made its public debut in November, the first such offering since August.
Credit markets, the backbone of M&A activity have remained relatively solid, making it harder to complete deals. Companies, even those with high credit ratings, are having a hard time securing credit and finding buyers for their debt to muster up cash.
Pado also pointed to the stock’s low valuation as putting pressure on merger activity, saying when markets go down companies don’t like to use stock as capital to purchase.
"When you are using your stock in a mergers for capital and its been cut down 50% and you feel your company is worth more than that you won’t want to use that,” he said.
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