A frozen January

Contact: Brenon Daly

In the equity market, there’s a well-known investing phenomenon called ‘the January effect.’ The basis of this is that stocks, particularly small-caps, tend to rise in the first week or two of the New Year as investors buy back some of the names they might have sold for tax reasons at the end of the prior year.

Since the first month of 2009 is in the books, we decided to investigate whether there was a similar January effect on the M&A market this year. Based on the last few years, we’d note that dealmaking tends to start slowly. In each of the past three years, spending on M&A in January has come in significantly below a month-by-month average for the year.

But far more dramatically, the deal totals indicate a new January effect – this year’s market is frozen. Spending plummeted to just $2.1bn in the first month of the year. The reason? The disappearance of the big deal. Autonomy Corp’s $775m all-cash purchase of Interwoven stands as the largest transaction of 2009 so far. However, in January 2008 there were three deals larger than Autonomy-Interwoven, and January 2007 posted six deals larger.

M&A in January

Period Deal volume Deal value % of total annual M&A spending
January 2005 208 $40.5bn 11%
January 2006 321 $16.8bn 4%
January 2007 373 $20.9bn 5%
January 2008 333 $17.6bn 6%
January 2009 204 $2.1bn N/A

Source: The 451 M&A KnowledgeBase