The Future of M&A in 2012

 

According to Merrill Datasite’s recent “Monthly M&A Insider, April 2012” report, M&A “activity [inNorth America] declined in Q1 2012 with 873 deals valued at $149B, a 9.9% decrease in volume and 26% decrease in value when compared to the same time last year.”

What they don’t say is that Q4 to Q1 figures can typically trend down as the rush to close a deal by year-end falls off in Q1, and builds up again during the year. And if you delve deeper into the report you will find activity is flat -to-down in nearly every first quarter since 2006, so I discount Q1 2012 in the same way.

But this does not mean CEOs should sit back and wait around until things pick up this year. Strategic deals are the cats meow in 2012 with over $3 Trillion in excess cash on corporate balance sheets looking for M&A deals. Add to that on the Sponsorship side another $400Bil from Private Equity Funds looking to deploy that cash and I view the pump as altogether well primed to go. So what are we waiting for?

What I keep hearing from corporate execs is “uncertainty” is paralyzing the Board against taking only the most obviously easy to swallow deals, like the announcement of Kelloggs buying Pringles for $2.7Bil from P&G after Diamond Foods backed out. Not a real head turner decision for a strategic thinking Board to make.

The future of M&A now lies in 2 Worlds, the one in which CEOs can see and calculate a confident deal road ahead, and the other, which blinds CEOs, freezes them in their tracks, and paralyzes their muscles, like a deer in headlights. Ever wonder what that deer must be thinking just then?

I characterize this paralysis as a Tug of War game in the CEO suite going on right now between two opposing sides of advisors to the Board and the CEO. One side sees more clearly in their world the ‘what and how’ to measure a deal-launch sequence, while the other side sees chaos, and firmly pulls back hoping to paralyze the Board and Chief exec. This paralyzing intersection of indecision can stretch apart or destroy an important chance at a longer term value proposition a CEO may need down the line. Make sesnse?Just remember; “Fear is the mind killer” [Dune 1984].

In my next article, to be published in May, I drill down specifically on the Top 10 M&A Deal Drivers in this 2012 Tug of War room from a CEO vs Advisor perspective, and then ask you, which side of the rope should you be on?  Stay tuned…

 Rick Andrade