CNNMoney: Fiscal Cliff, Europe Dampening What Should Be Busy M&A Year

Thursday, 11 Oct 2012 11:47 AM

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The rapidly approaching fiscal cliff in the United States and the ongoing European debt crisis that shows no signs of easing have dampened what should have been a busy year for mergers and acquisitions, new data show.

A rising stock market (the Standard & Poor’s 500 is up 14 percent year to date), cheap credit and overflowing stockpiles of cash make conditions ripe for mergers and acquisitions, though such activity is at its lowest levels since 2009, thanks to Europe’s crisis and the fiscal cliff in the United States, a combination of expiring tax breaks and spending cuts scheduled to strike at the end of the year.

Through Sept. 30, global M&A activity is down 15 percent from a year earlier, according to Dealogic data cited by CNNMoney.

Editor's Note: The Truth About the Economy — Government Documents Lead to Eerie Conclusion

“This business has always been about CEO and board confidence,” said Mark Shafir, co-head of global mergers and acquisitions at Citigroup, CNNMoney reported.

“If you are uncertain about how well your business will do in the next six, nine or 12 months, it tends to dampen enthusiasm for going out and making deals.”

Some sectors have seen some activity, however.

Take the oil and gas industry, with $222.6 billion of deals completed during the first three quarters — up 12 percent from last year, according to Dealogic.

Low natural gas prices have been the biggest driver behind that surge, said Phil Weiss, a senior energy analyst at Argus Research.

Small businesses are not very confident in the economy these days, as well.

The National Federation of Independent Business (NFIB) said that its Optimism Index, which gauges the mood among small businesses, fell 0.1 point to 92.8 in September, a recession-level reading.

Since the federation began its monthly surveys in 1986, the index has dipped below 93.0 a total of 56 times — 32 of which have occurred since the recovery began in June 2009.

Electoral uncertainty has small business owners fretting over their future on top of the fiscal cliff and the European debt crisis.

“The election is just weeks away and essentially a horse race, and its outcomes would have vastly divergent policy implications,” NFIB chief economist William Dunkelberg said.

“Everyone is waiting to see what happens, especially small-business owners who have a lot at stake in the outcome — which could mean higher marginal tax rates and more deficits, or lower marginal tax rates and less government,” he added.

“[I]n the meantime, owners are in maintenance mode; spending only where necessary and not hiring, expanding or ordering more inventories until the future becomes more ‘certain.’”

Editor's Note: The Truth About the Economy — Government Documents Lead to Eerie Conclusion

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