Dealmakers have come down from their short-lived M&A high

March 22, 2013
March 22, 2013

This year started out looking like it could be a banner 2013 for global mergers & acquisitions (M&A) activity. There were a slew of big deals in the first few months, including the sale of ketchup maker Heinz and the merger between US Airways and American Airlines. The media hyped how M&A was back, and soon afterward, the Dow hit record highs.

But dealmakers have come down from their high and their so-so feelings about deal activity were evident at this year’s Tulane Corporate Law Institute conference in New Orleans. It’s the event where M&A practitioners in the US make the annual spring pilgrimage to eat gumbo, listen to jazz and party. Oh yes, and they also discuss corporate law, network and get some deals done.

Usually there is big talk about how the time is ripe for M&A, since companies have a record amount of cash on their balance sheets and CEO confidence is on the rise. But there has been a dearth of big deals in the last few weeks. That means the first quarter could see only a slight uptick overall, while last year deals dipped a bit. Companies are still too uneasy to quickly pull the trigger on acquisitions, especially on big, transformational deals.

About a dozen bankers and lawyers Quartz surveyed at the conference said the optimism they had in the first two months of this year has faded a bit. Europe has a lot to do with this. Just as they were getting over the hiccup of the Italian elections, Cyprus has made them worry again. Although the 2008 financial crisis has gotten companies used to absorbing shocks to the system, the environment still doesn’t seem ripe for the steady M&A activity that is the bread and butter of dealmakers.

Bankers are known for their exuberant optimism, so the view presented by Citigroup co-head of global M&A Mark Shafir was notable for its sobriety. He predicted that 2013 would not be year for a major M&A recovery. Global M&A, he said, was stagnant at 2005 levels and the biggest decline has been in deals over $5 billion, largely due to a drop in Western Europe. In fact, Shafir said, deal activity in Western Europe is about half of what it was before the financial crisis.

Shafir said one of his biggest worries was what happens if the Federal Reserve starts reining in interest rates, as talk of a bond bubble increases. Although people know the good times of easy monetary policy can’t last forever, it’s one thing to say it and another to actually plan for it—and most companies and consumers probably haven’t really started planning.

When some of his colleagues joked with him later that he brought them down, Shafir said he hopes to be proven wrong. But, he said, “I had to call it like I see it.”

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