Global M&A May Take at Least Two Years to Return to 2007 Pace, Survey Says

Global mergers and acquisitions may take at least two years to return to the record pace of 2007, when volume was more than $4 trillion, a survey of takeover professionals showed.

Limited economic growth will be the most significant obstacle to doing deals, according to 36 percent of respondents in Bloomberg’s 2012 Global M&A Outlook survey of financial market professionals released yesterday. Concern about sovereign debt was identified by about 25 percent as the biggest obstacle.

The world economy would grind to a standstill if the 17- nation euro zone failed to overcome its debt crisis, as risks of a double-dip recession in the U.S. and Europe loom, the United Nations said Dec. 1. Equity markets tumbled yesterday as the European Central Bank damped speculation it would boost debt purchases and regulators said the region’s lenders need to raise more capital than previously estimated.

“People are slowly realizing that optimism alone isn’t going to bring about deals, and we actually have to take steps toward fixing the underlying economic problems,” said Anita Khalili, a co-author of the report. “It’s amazing how many of the respondents talked about Europe needing to fix the problems it has for M&A to be healthy,” she said.

The biggest jump in dealmaking may take place in the energy and power industries, according to more than 40 percent of those surveyed. Two of the four biggest takeovers announced this year involved energy companies, bringing year-to-date deal volume to about $2.2 trillion, according to data compiled by Bloomberg.

“As we look to move away from oil production, demand is high to look at alternative resources,” Khalili said. “This industry is ripe for increased M&A activity,” she said.

Cash on Hand

Mergers and acquisitions among basic materials and financial companies may also increase next year, according to more than a quarter of those surveyed. Basic materials include raw materials such as metals and mining and chemicals.

Most of those surveyed said internal cash reserves will be the major source of capital for financing M&A transactions in 2012. Last year, more than 40 percent of respondents expected equity to be the primary funding source.

The Asia-Pacific region’s buyers may be the most active in 2012, survey respondents said, even as this year’s M&A activity in the region failed to match respondents’ outlook for growth in last year’s survey.

Nippon Steel Corp. (5401)’s agreement to purchase Sumitomo Metal Industries Ltd. for $9.5 billion is the fifth-largest deal announced in 2011, Bloomberg data show. The combination of the two Japanese companies contributed to more than $640 billion in Asia-Pacific volume this year.

Latin America

The biggest decline in M&A was in Latin America after a jump in 2010. Brazil dropped, after reaching its highest volume in a decade last year, according to the report.

So-called megadeals, or those valued at more than $5 billion, accounted for about 30 percent of deal volume as of mid-August, and about 50 percent of survey respondents said that will probably remain about the same in the comparable period of 2012. The biggest takeover announced this year, AT&T Inc.’s (T) agreement to buy T-Mobile USA Inc. from Deutsche Telekom AG for $39 billion, may fail due to a U.S. government antitrust challenge.

Private-equity buyers are also seen as likely to play about the same role as they did in 2011, according to about half of the respondents. Buyout firms accounted for around 16 percent of company takeovers in 2011, the report says. Blackstone Group LP’s (BX) purchase of Centro Properties Group’s (CNP) U.S. shopping centers for $9.4 billion was the biggest deal made by the world’s largest private-equity firm since 2007.

Bloomberg’s 2012 Global M&A Outlook report reflects the views of more than 1,000 financial market professionals who focus on M&A, in surveys conducted from Aug. 20 through Nov. 30.

To contact the reporters on this story: Will Robinson in New York at wrobinson11@bloomberg.net;

To contact the editors responsible for this story: Jennifer Sondag at jsondag@bloomberg.net