Is M&A on a Slow Upswing?

Deals such as Disney-Marvel and Baker Hughes-BJ Services suggest that merger-and-acquisition activity is gradually picking up. But don't expect a quick recovery

By Ben Steverman

After a very slow summer for merger-and-acquisition activity, "Merger Mondays" might be coming back.

Until two years ago, Wall Street dealmakers were accustomed to giving up their weekends to wrap up big M&A deals. As a result, it seemed that every Monday a flurry of acquisitions would greet investors starting their week.

The recession and credit crisis have ensured a paucity of deal news on the first day of the workweek in recent months, but Wall Streeters returned from their weekends on Monday, Aug. 31, to find two big transactions. Walt Disney Co. (DIS) agreed to acquire Marvel Entertainment (MVL) in a $4 billion cash-and-stock purchase. And oil driller Baker Hughes (BHI) agreed to buy competitor BJ Services (BJS) in a $5.5 billion deal.

a flurry of deals

Also announced on Aug. 31 was a smaller energy deal in which Kinder Morgan Energy Partners (KMP) agreed to pay about $266 million for the natural-gas businesses of Crosstex Energy (XTEX). A week earlier, Warner Chilcott (WCRX) agreed to buy Procter & Gamble's (PG) pharmaceutical business for more than $3 billion. "People are coming out of hibernation," says Mort Pierce, chairman of law firm Dewey & LeBoeuf's M&A group.

The M&A market is certainly in need of some momentum.

According to initial data from Dealogic, through the end of August the number of U.S. M&A deals is down 22% compared with the same time last year. The value of those deals is down 48% so far this year, from $857 billion to $448.3 billion.

Summer, and especially August, is often a slow time for M&A. But this summer M&A has seemed especially quiet. In June, July, and August of 2007, 2,707 U.S. M&A deals were announced, a number that fell to 2,161 in the summer of 2008. This summer the total number of U.S. deals was only 1,696.

Although equity markets have rallied and credit markets have improved, July and August have been by far the two slowest months of 2009. Evidence of an economic rebound may be impressing investors, but dealmakers remain apprehensive.

perception of stability is key

"There's been a lack of certainty, and you can't have a robust M&A market without confidence in the future," says Andy Levine, a partner specializing in M&A at law firm Jones Day.

Under the surface, however, M&A activity is stirring, say investment bankers and M&A attorneys. "There is a lot of activity behind the scenes," Levine says.

Business Exchange

Track and share business topics across the Web.