Financials (which includes real estate) looks set to be the "standout" sector for global M&A volumes and has registered growth of 234% post-crisis (2008-2013 YTD), research from S&P Capital IQ, a leading provider of multi-asset class research, data and analytics, has revealed.
Analysing M&A statistics both regionally and cross-sector, S&P Capital IQ notes that the Financials sector currently leads in both TTV (Total Transaction Value) and Deal Volume – in terms of the former, Financials make up over a quarter (25.2%) of total M&A activity. Combined with Consumer Discretionary and Industrials, these sectors represent approximately 50% of total deal value.
"While our research suggests Financials could be the standout sector going forward, historical data shows Utilities led pre-crisis growth," commented Vickesh Mistry, Senior Modelling Specialist at S&P Capital IQ. "M&A activity in the Utilities sector grew from 383 deals in 2004 to 977 deals during 2007, a quarter-on-quarter growth rate of 345%. Moving into the post-crisis era, it appears that Utilities continues to grow but at a much slower pace than its Financials counterpart."
It must be noted that all sectors experienced solid growth pre-crisis however, Telecommunication Services experienced the most significant contraction as the number of deals plummeted from a pre-crisis peak of 196 deals to a low of only 87 deals during Q2 2009. As this is a low volume sector, it has struggled to recover as appetite and funding for mega deals evaporated, as noted from the period of inactivity in mega deals between 4 December 2008 and 3 December 2009.
In terms of asset value, the data shows that Telecommunication Services leads the way, with significantly higher transaction values than all other sectors – the average TeleCo transaction value is EUR 696 MM pre-crisis and EUR 800 MM post-crisis, representing a minimum EUR 200 MM premium over all other sectors. The gap appears to widen significantly post-crisis. Utilities is the next highest value sector, during both periods, followed by Energy. The range in valuation between Utilities and Energy narrows markedly during the post-crisis period from EUR 184 MM to EUR 30 MM. Compared to pre-crisis activity post 2008, the relative attractiveness of Consumer Staples and Healthcare appears to have shifted these sectors above Financials and Materials. However, with the exception of mega deals completed within Telecommunication Services, all sectors have experienced a 25% decrease in average total transaction value.
Based on S&P Capital IQ's research, North America and Western Europe dominate M&A activity globally over the period 2004 -2013, while Brazil, Russia, India & China (BRICs) in total represent 11% and 9% of Total Deal Volume and Total Transaction Value, respectively. Europe represents 33% of global deal volume in aggregate, outpacing the United States. The United Kingdom, France and Germany account for over 50% of European deals and 15% of global TTV.
"The long term global picture indicates a mixed view given that 2011 data suggests deal growth above the previous market peak, while 2012 data is showing a small decline on 2011," concludes Mistry. "As it is China is showing growth 2.5 times greater than its peers while the short term view highlights an interesting group of countries with two emerging market economies; Brazil and China coming to the fore."