Taking Stock: M&A Slump… CEOs Upbeat…

M&A SLUMP: Global mergers-and-acquisitions activity fell as the economic downturn worsened in the first half of 2009. Data compiled by the research firm Mergermarket showed total deal volume was down 47.4 percent to 3,800 transactions, compared with the year-ago period, and the value of M&A activity dropped 43.6 percent to $705.7 billion. Deal volume decreased 51.6 percent from the peak of 7,880 transactions during the first half of 2007, as total value fell 66 percent from almost $2 trillion. On a quarter-to-quarter basis, deal volumes have remained steady through 2009, suggesting the number of M&A transactions may have bottomed out, Mergermarket said. Consumer category deals, including those for retailers, accounted for 14.4 percent of transactions during the first half, but only 5.6 percent based on value. The biggest slump was in the upper end of the mid-market level, or deals between $250 million and $500 million. While the U.S. recorded a 9.6 percent slip in large-cap transactions (worth more than $500 million) by value, six of the 10 largest deals involved U.S. targets, the biggest of which was Pfizer’s January acquisition of Wyeth, at $64 billion, according to Mergermarket. At the lower mid-market tier, deals between $10 million and $250 million accounted for an average of 37.1 percent of North American M&A activity and 34.9 percent of European transactions from 2008 to the first half of 2009. This segment continues to account for more than 55 percent of overall M&A activity in the Asia-Pacific region. Large private-equity deal flow remains nonexistent in 2009. — VICKI M. YOUNG

LUXURY SPENDING DOWN: The luxury-goods sector is heading for one of its worst years on record, with a predicted drop in expenditures of 6 percent, to 211 billion euros, or $294.7 billion, according to a new European report. The study, conducted by London-based retail analysts Verdict, said Japan and the U.S. are expected to bear the brunt of the 2009 slump, with sharp declines in sales of 14.6 percent and 12.1 percent, respectively. A far different luxury retail sector will emerge once the global economy recovers, according to the report. Customers, who are now favoring understatement rather than fashionability, are likely to demand fewer, but more exclusive, items of outstanding quality. In addition, the Internet will be a major sales conduit for luxury goods, helping to widen their reach and bring costs down. Another issue luxury-goods companies will have to address is the extreme volatility of currency movements, Verdict said. Luxury is one of the few sectors where products are manufactured in Europe and sold to the rest of the world. The appreciation of the euro compared with other currencies has meant that the pressure on retail prices has been increasing, according to Verdict. — ELENA BERTON

CHIEF EXECS UPBEAT: CEOs ended the second quarter of 2009 with a renewed sense of confidence about their own industries and the economy at large. The Conference Board Measure of CEO Confidence surged from 30 to 55 in the most recent quarter, the second period in a row that it has recorded gains. In addition, the percentage of business leaders expecting improvement in economic conditions more than tripled to almost 55 percent in the second quarter from about 17 percent three months ago. “CEOs are considerably more optimistic than last time about the short-term outlook,” said Lynn Franco, director of The Conference Board Consumer Research Center. Thirty-two percent of the CEOs surveyed said economic conditions are better than they were six months ago, compared with zero percent in the first quarter. During the next 12 months, 46 percent of the respondents expect profit increases. Executives in the durable goods industry were the most optimistic, with 77 percent anticipating higher profits. Executives in the nondurable goods sector were second in profit expectations, with 64 percent anticipating a rise, the Conference Board said. While 56 percent of CEOs surveyed believe cost reductions will drive up profits, 33 percent cited market/demand growth as the source of improvement. — V.M.Y.

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