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Big Deals (October 8, 2010) Print E-mail

By Marine Cole

The value of worldwide M&A totaled $1.75 trillion in the first nine months of the year, a 21 percent increase from the same period in 2009 and the strongest nine-month period for M&A since 2008, according to data provided by Thomson Reuters.

By number of deals, M&A activity is up 3.8 percent compared to last year with 29,000 announced deals.

For the third quarter, worldwide M&A activity is up 21 percent over the second quarter to $676.9 billion, the largest quarter since the third quarter of 2008.

The energy and power sector was the most active during the first nine months of the year, commanding 20.5 percent of announced M&As. The financials and materials sectors accounted for 15.5 percent and 12.8 percent respectively.

Deals in the financials, health care and industrials sectors have all experienced double-digit percentage declines over the first nine months of 2009.

In the technology sector, there have been 31 worldwide announced M&A deals in 2010 with total value larger than $1 billion. This represents the highest number of transactions this size in the industry since the same period in 2000. That year, there were 72 deals valued larger than $1 billion.

Year-to-date M&A activity in the tech sector has reached $116 billion, up 25 percent from the same period in 2009. Deals over $1 billion represent 54 percent of total worldwide value in the tech sector this year.

Total value for deals of this size in the sector in 2010 has reached $62 billion, bolstered by the third quarter of 2010, which saw 15 announced deals over $1 billion with total value of $33 billion, the largest quarter by value and number of deals since the fourth quarter of 2007.

Meanwhile, private equity is seeing some signs of life.

Worldwide PE-backed M&A activity totaled $149.7 billion in the first nine months of 2010, the largest opening period since the first nine months of 2008. PE-backed M&As accounted for 9 percent of worldwide announced M&As during the first nine months of 2010 and increased 116.2 percent compared to the same period last year.

In the debt capital markets, BP enjoyed investor confidence that the company can absorb the estimated $30 billion cost of the oil spill when its 2 billion euros bond offering was four times oversubscribed, according to the Wall Street Journal. This comes after the company 's $3.5 billion of five- and 10-year bonds received $12 billion in orders from investors the prior week. The yield on the debt issued this week wasn't even higher than with bonds the investment-grade company issued in August 2009.

Reynolds Group, for its part sold $3 billion of notes in the second-largest offering of high-yield corporate debt this year, according to Bloomberg. The company sold $1.5 billion of 8.5-year secured notes that yield 7.125 percent and a similar amount of unsecured debt of the same maturity that pays 9 percent.

Most of the proceeds from the deal will be used to fund acquisitions, including the $6 billion purchase of Pactiv, which makes Hefty trash bags.

Overall, the yield on corporate junk debt keeps falling. According to the Bank of America Merrill Lynch U.S. High Yield Master II Index, they fell to 7.96 percent this week, the lowest since June 2007.

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