A bummer of a summer

Contact: Brenon Daly

Since we’re right at the midpoint of the third quarter, we thought we’d check up on recent deal flow. (For all of the pre-decimalization Wall Street traders out there, this means that 2010 is now five-eighths in the book.) When we ran the M&A numbers for Q3 so far, we found that it’s been a bummer of a summer for dealmakers: The number of transactions from July 1 to August 15 hit a six-year low.

For the six-week summer period so far this year, the number of deals totaled just 373 transactions, only a slight 3% decline from the recent low (386 deals during the same period in 2008) but a whopping 30% drop from the recent high (530 deals during the same period in 2006). Further, the scant spending in the period so far puts the full third quarter on track to hit just the low end of the range we’ve seen since the Credit Crisis erupted. And that’s coming after a post-recession M&A spending record notched in the second quarter. (See our full Q2 report.)

There are a number of reasons for the light activity. The stock market has been weak lately, with the recent slide leaving the Nasdaq underwater for the year. So far in August, the Nasdaq has registered seven down days compared to three days when it closed in positive territory. During that same period, the uncertainty in the market – as represented by the Chicago Board Options Exchange’s Volatility Index – has moved from the low-20s to the mid-20s. Risk and uncertainty tend to work against M&A, either by prolonging negotiations or killing deals altogether.

Mid-Q3 M&A totals

Period Deal volume Deal value
July 1-Aug. 15, 2010 373 $16.2bn
July 1-Aug. 15, 2009 403 $11.9bn
July 1-Aug. 15, 2008 386 $18bn
July 1-Aug. 15, 2007 427 $35.2bn
July 1-Aug. 15, 2006 530 $55.5bn
July 1-Aug. 15, 2005 383 $37.9bn
July 1-Aug. 15, 2004 244 $10bn

Source: The 451 M&A KnowledgeBase