CNBC has an article today about the drop in M&A volume in 2008. Over 1,000 announced deals failed to close this year as the financial turmoil - particularly in the 4th quarter - made it often a better decision for buyers to pay any break-up fee and walk away. Many banks that had committed to fund the debt portion of purchase prices also walked away before closing where they could.
There have been a few high profile deal terminations involving Arizona companies over the last few months - the most recent being the JDA Software acquisition of i2 Technologies falling through. Other deals like the Republic Services/Allied Waste merger managed to close this month.
The article notes about private equity:
Private equity firms, which had been a formidable force in M&A in the prior two years, hit a five-year low in dealmaking in 2008, according to Thomson Reuters data.
Deals by private equity and other financial sponsors plunged 72 percent, with fourth-quarter deal volume at the slowest since the fourth quarter of 2001, Thomson Reuters data showed.
As I have written previously, this isn't surprising as private equity funds have been hit by redemptions forcing them to rethink their acquisition strategies going forward.
As the article points out, 2009 is shaping up to be a year where companies and private equity funds with strong balance sheets/readily available cash will take advantage of the recession to buy distressed assets and companies. The question of course is how many companies are left in that position. Steve Krouskos from Ernst & Young has my favorite quote from the article:
"If you're a corporate with a good cash position, 2009 is a good time to fill strategic holes or take advantage of the drop in equity prices," Krouskos said. "A recession is a terrible thing to waste."
Why, yes it is.
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