Contact: Brenon Daly
In both August 2015 and August 2011, concerns about slowing global economies knocked stock markets around the world into a tailspin, while also ratcheting up volatility. Intuitively, we would assume that both conditions, which introduce more variance and uncertainty, would make it more difficult to do deals. But is that actually the case? And if so, what can the whipsawing markets from four years ago tell us about how M&A activity might play out for the rest of 2015?
To get a sense, we split 2011 into a ‘pre-turmoil’ period of January through August, and then a ‘post-turmoil’ period of September through December (which is roughly the same four-month block that remains in 2015). When we ran the numbers in 451 Research’s M&A KnowledgeBase, we got a pretty clear picture of acquisition activity in the two periods of 2011: the M&A market never got back on track after the summer upheaval.
Through the first eight months of 2011, dealmakers averaged $22.3bn in spending on tech, media and telecom (TMT) transactions each month. For the remaining four months of 2011, average spending dropped about 40% to just $13.6bn per month. Further, it wasn’t just a case of where a deal or two in the front half of the year skewed the total. Instead, it was pretty even spending on significant transactions. There were eight separate acquisitions announced in the first eight months of 2011 valued at more than $4bn, while not a single deal that size hit the tape in the last four months of the year.
We have noted how the black swans have already befouled the M&A market in the short term. (Spending on TMT transactions dropped a staggering 80% in the second half of August, according to the KnowledgeBase.) If past is precedent, the rest of 2015 won’t be as bad as that, but it also won’t be anywhere near as good as it has been. A 40% decline – like we saw at the close of 2011 – would mean each of the remaining months would come in at roughly $30bn in average monthly spending, compared with the monthly average since the start of 2015 of nearly $50bn.
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