Investment banks suffer as M&A value plunges 46%

Corporate activity dwindled further in the third quarter this year, as the downturn in the equity markets deterred companies from pursuing mergers, flotations and fund-raising, according to several studies published today.

An analysis by Dealogic finds the downturn in mergers and acquisitions – a lucrative source of fees for investment banks – in the period has contributed to a 46 per cent decline in the value of M&A deals overall so far this year. While the volume of announced hostile bids is up 43 per cent, more than two thirds have failed or have been withdrawn.

The deal slump extends across all sectors, although telecoms, where the dealflow has fallen 56 per cent, has been hit especially hard. The financial sector remains the most active for M&As, but even here overall deal value is down 35 per cent. Goldman Sachs tops the rankings for M&A fees, despite ending the first quarter in fifth place, followed by Merrill Lynch and Credit Suisse First Boston.

In equity fund-raisings, total deal value year-to-date is down 36 per cent on the same period in 2000, while the number of initial public offerings worldwide is down 61 per cent, Dealogic said.

In the UK, there were just two flotations in the third quarter, the insurer Friends Provident and Parkman, a support services firm. According to an analysis by KPMG Corporate Finance, some 16 investment trusts also came to the market, helping lift the total amount of money raised to £2.84bn. The figures represent a year-on-year decline of 55 per cent and a quarterly drop of 47 per cent.

Neil Austin, the head of new issues at KPMG Corporate Finance, said: "The IPO market had virtually ground to a halt even before the tragic events in the US. This has created a great deal more uncertainty so investors will continue to sit on their hands. It is impossible to predict the timing of any recovery. Even when the market picks up we are looking at a time lag of up to six months whilst companies prepare for flotation."

Management buyout activity also slumped in the third quarter following a record first half. According to the Centre for Management Buyout Research, the value of buyouts completed in the period fell 50 per cent year on year, and 38 per cent on the second quarter. On a nine-month view, buyout value was £17.5bn, just short of the £17.8bn in the same period in 2000. Venture capital groups seeking to exit investments face a tough challenge, with the first nine months of the year seeing only 145 exits, against 275 in 2000 as a whole.