In May, global M&A ‘cooled’ by Europe’s liquidity issues, says Baird

The ingredients for a healthy M&A market still exist, and they include ready access to capital for cash-rich corporations and financial sponsors as well as a potential capital gains tax hike next year, but global equity markets continued to experience extensive weakness in May and turbulent market conditions have hindered equity offering activity, according to research published today by Baird.

The ‘Global M&A monthly outlook’ of the asset management company reported that deal metrics extended their slide into May, with M&A participants troubled by cooling global economies and Europe’s liquidity issues.

“On a year-to-date basis, the global M&A transaction total was down 6.7%. Reported dollar volume dropped 16.2% in the first five months of 2012, continuing a downtrend that began last summer. In the middle market, the number of deals decreased 11.8% through May, and dollar value declined 15.4%,” Baird said.

In May, the transaction count contracted 18.2% to 2,281, the lowest figure in the past 18 months on the back of mounting concerns about slow global economic growth.

The global all-industry purchasing managers index (PMI) for May fell to a six month low, with weaker trends in Europe representing a drag on growth elsewhere.

At this stage, Baird said, clear evidence of a broad-based economic rebound is needed for the M&A market to thrive.

“The combination of a widespread economic slowdown and another flare-up in Europe’s debt crisis caused deterioration in the credit markets during May. Global high yield debt issuance was the lowest monthly total to date in 2012,” Baird said.

Moreover, as investors moved toward safe havens, issuance trailed off in the last two weeks of May, while high yield fund flows turned significantly negative in mid-May after strong inflows in the preceding five months, portending weaker issuance in the near term.

“For liquidity to return to these asset classes in support of M&A financings, concerns about Europe’s debt problems and the global economy must subside,” the report warned.

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