Global M&A volume could be highest in August: Report

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And, that's not all - there are some mega deals in the pipeline, some of which are hostile - while Australian miner BHP Billiton has made a hostile $37.8 billion offer to buy fertilizer giant Potash Corp. while South Korean oil giant KNOC said it will take its $2.9 billion bid to buy British oil explorer Dana Petroleum directly to the latter's shareholders. Both BHP and KNOC expect a favorable outcome.

Not surprisingly, Bloomberg has even predicted that M&A activity could grow to $285 billion in August.

And, though the high level of M&A activity might surprise some, industry watchers claim that it's actually not surprising as many companies have high cash reserves after hoarding during the economic downturn. According to data provided by FactSet Research, at the end of the first quarter of 2010, publicly-traded companies in the US had $2.03 trillion in cash and short-term investments on their balance sheets, which is about 57 percent higher than 2006's level.

Another factor that could have encouraged deal makers is the recent slump in equities market that has left potential targets look more attractive.

And, though no one could say for certain whether the large number of deals in August is the beginning or a new trend or just a blip on corporate calendar, one thing is certain - 2010 is going to surpass 2009 in terms of deal volume - in the first seven months of this year, deal volume has topped $1.49 trillion or 14 percent up from 1.3 trillion clocked during the same period last year.

To date, 2007 holds the record when it comes to deal volume - $3.16 trillion. Volume of deals fell in 2008 to $2.14 trillion and to $1.3 trillion in 2009 because of credit squeeze and global economic recession.

Excluding the BHP-Potash deal, the top 5 deals of 2010 are Latin American wireless carrier America Movil SAB de CV's acquisition of Carso Global Telecom for $27.5 billion; French utility major GDF Suez SA's purchase of International Power Plc. for $25 billion; telecommunications services provider CenturyLink Inc.'s acquisition of Qwest Communications International for $22.2 billion; media and entertainment giant News Corp.'s $13.7 billion buy of British Sky Broadcasting Group; and non-alcoholic beverages and snacks giant and Coca-Cola Co.'s $13.4 billion purchase of its largest bottler Coca-Cola Enterprise Inc.

Industry-wise, according to Bloomberg, telecommunications is the most active industry for deals in 2010 with $109.4 billion worth of deals announced, followed by oil and gas with $108.6 billion. The mining industry is at a distant third with $67 billion worth of deals announced so far.

According to Dealogic, Asia-Pacific companies are also becoming bolder in 2010 in striking overseas deals compared to past two years. Asia-Pacific companies, Dealogic said, have made $132.7 billion of offers for companies outside their home country this year, compared with $142.7 billion in the same period of 2008 and more than double last year’s pace, when the global financial crisis was making its presence felt.

While India's telecom giant Bharti Airtel's $9 billion purchase of the African assets of Kuwait's Mobile Telecommunications, known as Zain, is easily the largest acquisition by an Asia-Pacific company in 2010, other notable deals include a bid valued at $2.57 billion from Malaysian sovereign-wealth fund Khazanah Holdings to buy what it doesn't already own in Singapore health-care group Parkway Holdings and Singapore-listed Wilmar International's $1.5 billion bid for Sucrogen, Australia's CSR's sugar business.

But not all mega deals end successfully. Take, for instance, British insurance giant Prudential Plc's $35.5 billion bid for American International Group Inc.'s (AIG) Asian arm American International Assurance (AIA), which fell through because of pricing issue.

Also not all deals are driven by buyers' confidence. Good examples are two of the biggest deals of July - BP's sale of oil and gas fields to Apache for $7 billion and Caja Madrid's acquisition of Bancaja - were prompted more by the distress of the seller than by the confidence of the buyer.

 Conclusion  

The global economy has not fully recovered. In the US, stubbornly high levels of unemployment and weak residential construction activity still persist.

However, if July didn't dissuade deal makers, it is likely that August won't.

"Looking ahead, we expect the deal environment will continue to improve as credit access eases, equity markets advance and economic growth rates stabilize," Barry Misthal, US industrial manufacturing leader, PricewaterhouseCoopers, said. "We believe that buyers are becoming increasingly optimistic in their near-term economic outlooks."