NEW YORK-A sharp September market drop caused an overall third-quarter decline in domestic merger activity in all sectors, according to Mergerstat, a division of Houlihan Lokey Howard & Zukin, Los Angeles.
Nevertheless, the running total of 5,766 such transactions announced during the first nine months of 1998 are valued at $1.03 trillion, which places this year well ahead of 1997’s all-time record of $657.1 billion. In fact, the 1997 total was eclipsed early during the second quarter of 1998, Mergerstat reported.
After banking and finance, the communications sector ranks second for the first three quarters with 159 transactions totaling $156.7 billion and accounting for 15.2 percent of total deal value.
Communications was the most active industry sector during the third quarter, with 47 announced transactions valued at $60.9 billion, Mergerstat said. These included Bell Atlantic Corp.’s $52.8 billion offer for GTE Corp., the fourth-largest deal in any sector announced during the first three quarters (See chart, p. 27).
Overall, 1,838 M&A transactions were announced during the July-September period, representing a 12-percent decline from the third quarter of 1997 and a 6-percent decrease compared with the first two quarters of 1998.
While the number of deals slowed, their aggregate value in the third quarter rose by 72 percent to $270 billion when compared with the same period a year ago. That total also represented a 46-percent increase above the first quarter of this year. However, this was a 53-percent decrease from the second quarter of 1998, when eight of the 10 largest mergers and acquisitions in U.S. history were announced.
“Megamergers represented only 6 percent of the deals with reported values for the first nine months, but they account for 80 percent of the total dollar value of the M&A market,” said Bill Clark, chief operating officer of Mergerstat.
During a year in which more than 100 M&A transactions valued at $1 billion or more have been announced, only two have occurred since Aug. 31, the date when the Dow Jones Industrial Average experienced the second-largest drop in its history.
“We saw a dramatic reduction in the number of megamergers in September, [and this] affects both the aggregate and average dollar values of mergers and acquisitions,” Clark said.
Transactions involving sellers of publicly held companies also dropped substantially in September to about half the weekly average for the first eight months of 1998.
“There also has been a slowdown in deals involving foreign sellers,” Clark added. “Given the softness in certain foreign economies, some foreign businesses obviously do not feel this is a time when they can get the best possible price.”
Houlihan Lokey’s Mergerstat tracks publicly announced mergers and acquisitions involving domestic companies, but it does not include the exchange of business assets, private placements, spinoffs and open-market transactions. Also excluded from its totals are the dollar values of M&A transactions whose participants have not made those figures public.
