M&A Dealflow Declined 12% to $39.8 billion

Posted on by

Announced M&A volumes of $39.8 billion declined by 12% from the prior week. Thus far in 3Q12, announced M&A volumes are averaging 4% below the 2Q12 weekly average level and 7% below the 3Q11 average weekly level.

Sandler O’Neill’s Weekly M&A Trends:

The S&P 500 declined for the second consecutive week but ended positive for the month

  • The S&P 500 declined by 0.3% in the week and the Russell 2000 growth index rose by 0.5% in the week. In 3Q12, the S&P 500 has risen by 3.3% while the Russell 2000 index has improved by 1.7%.
  • Average daily U.S. equity trading volumes declined by 10.3% from the prior week. Thus far in 3Q12, volumes are averaging 16% below the 2Q12 weekly average and 34% below the 3Q11 average. Average daily U.S. volumes reflect the total number of shares traded on Tape A, Tape B, and Tape C in millions.
  • Equity mutual funds experienced net outflows of $5.9 billion in the week according to ICI data (on a one week lag). Net outflows from equity mutual funds totaled $18.4 billion in August, the highest monthly amount experienced since the $32.8 billion of net outflows experienced in December 2011. Equity mutual funds have experienced $24.6 billion of net outflows thus far in 3Q12 after experiencing net outflows of $22 billion in 2Q12 and $80.7 billion of net outflows in 3Q11.
  • Volatility, measured by the average CBOE VIX, rose by 13.2% to 17.0, and the DB currency VIX rose by 5.5% to 9.2.

Investment banking volumes were soft across the board as activity slowed as expected heading into the holiday weekend

  • Equity underwriting volumes of $4.5 billion decreased by 45% from the prior week. Thus far in 3Q12, equity underwriting volumes are averaging 18% below both the 2Q12 weekly average level and the 3Q11 average weekly level.
  • Corporate debt underwriting volumes of $30.8 billion declined by 15% from the prior week. Thus far in 3Q12, corporate debt underwriting volumes are averaging 9% above the 2Q12 weekly average level and 52% above the 3Q11 weekly average level.
  • Announced M&A volumes of $39.8 billion declined by 12% from the prior week. Thus far in 3Q12, announced M&A volumes are averaging 4% below the 2Q12 weekly average level and 7% below the 3Q11 average weekly level.
  • Completed M&A volumes of $8.9 billion declined by 57% from the prior week. Thus far in 3Q12, completed M&A volumes are averaging 9% below the 2Q12 weekly average level and 6% above the 3Q11 average weekly level.

Credit markets deteriorated on lighter volume

  • The Merrill Lynch high yield corporate bond spread (Merrill Lynch High Yield Corporate Bond Index less the 10-year treasury) widened (deteriorated) by 17 bps in the week to 580 bps. After widening (deteriorating) by 62 bps in 2Q12, the spread has tightened (improved) by 30 bps thus far in 3Q12.
  • The CDX investment grade index (IG18) widened (deteriorated) by 1 bp in the week to 102 bps. After widening (deteriorating) by 26 bps in 2Q12, the index has tightened (improved) by 10 bps in 3Q12 QTD.
  • The Markit iTraxx 5-year SovX Western Europe Index, which tracks Western European sovereign debt CDS (cost of insuring against default), declined (improved) by 1.5% in the week, and has declined (improved) in twelve of the prior thirteen weeks. While the index rose (deteriorated) by 5% in 2Q12, the index has declined (improved) 18% thus far in 3Q12.
  • Daily average bond trading volumes declined by 18% from the prior week. In the week, average investment grade bond volumes declined by 14%, average high yield bond volumes declined by 26%, and average convertible bond volumes declined by 32%. 3Q12 total bond volumes are averaging 14% below the 2Q12 weekly average and 9% below the 3Q11 weekly average.
  • The AAA ABX-HE was flat in the week and the CMBX rose by 0.3% in the week.
  • The trade-weighted U.S. Dollar Index (DXY) declined by 0.5% in the week and the Commodity Research Board Index (CRB) rose by 1.2%.
  • The TED spread (3-month U.S. Treasuries vs. 3-month LIBOR), which is an indicator of perceived default risk, widened (deteriorated) by 1 bp in the week to 35 bps. The TED spread remains materially below the 464 bps reached during the peak of the 08-09′ credit crisis.
Disclosure: I do not have a position in any stocks mentioned in this article, do not have a plan to initiate a position within the next 72 hours.
Disclaimer:  The information, opinions, material, and any other content provided in this article is for informational purposes only and is not to be used or considered an offer or solicitation to buy or sell securities, investment products, financial instruments, or to participate in any particular investment strategy. The information, opinions, material, and any other content provided in this article does not constitute as a recommendation or as advice to buy or sell securities, investment products,  financial instruments, or to participate in any particular investment strategy.