A handful of megamergers early this year drove the dollar value of takeovers ahead of 2012's pace, but the number of deals is down amid economic uncertainty.
Search leader Google (GOOG) added Tuesday to the tally of mergers and acquisitions by announcing the purchase of mapping software developer Waze. Also Tuesday, Dole Food (DOLE) received a $1 billion offer from its chief executive to take the fruit and vegetable giant private.
And conditions are still good for M&As. Companies are sitting on piles of cash. Interest rates remain low despite a recent climb in the 10-year Treasury yield.
Yet the impact of U.S. fiscal policy on the economy is a question mark, the path to recovery in Europe keeps getting longer, and markets are seesawing on any central bank stimulus clues.
For the year through June 11, announcements of U.S. firms or assets being bought totaled $528.3 billion, up 44% from the same time in 2012, while the number of deals fell 23% to 4,162, according to Dealogic. Worldwide, M&As are up 7% in value but off 24% in transaction volume.
A flurry of megadeals — including $28 billion for Heinz, $24 billion for Virgin Media and $24.4 billion to take Dell (DELL) private — marked the fastest start to a year since 2000.
But the pace soon cooled. Global dealmaking totaled $211 billion in May vs. an average of $236 billion in the last 12 months.
The number of tech M&A deals worldwide fell 12% in Q1 from a year ago to the lowest total in almost three years, according to an Ernst & Young analysis, though mobile computing, social networking and Big Data are changing the industry. Tech M&A values rose 58% overall — but fell 48% excluding the Dell offer.
The accounting firm sees uncertainty gradually lifting. "However, there is still a lack of confidence around doing large deals in the current economic conditions," it said in a May report.
Part of the decline in M&As overall is due to the tax hikes that took effect at the start of the year. In anticipation of the changes, M&A activity was pulled forward into Q4, much of it from middle-market firms that make purchases of $250 million to $750 million, said John Potter, a partner in PricewaterhouseCoopers' deals practice.
But interest in deals exists, and money is available. Potter sees improvement in the second half.
"Can we get the confidence to execute?" he said. "We're approaching that tipping point.
A Deloitte survey found uncertainty at companies over use of their cash, which totaled $1.78 trillion in the U.S. in Q1.
It found that 32% of executives polled don't know how their companies will spend cash in the second half. Another 31.7% think spending will be the same as the first half, 21.8% see it picking up and 15.5% see it slowing.
And while 40% expect M&As to increase in the second half, the rest don't think it will or don't know what will happen.
- Investment & Company Information