Quarter 3 2010 - is this the time for optimism?

So we are at the end of Q3 and looking at the numbers, deal activity doesn't appear to have been that bad.

Let’s start with the positives - Q3 2010 has seen the highest level of announced deals by value since Q4 2009 - some $620bn worth. Announced private equity-backed deals have reached the ‘dizzy’ heights of $69bn, levels not seen since Q2 2008.

Even though when we look at this value it’s still nowhere near the value of PE-backed deals seen in the heady days of 2006, 2007 and early 2008, some very high profile public takeovers have been launched and are ongoing, including BHP Billiton’s takeover of Potash, Intel's takeover of McAfee and, just this week, Unilever's bid for Alberto Culver.

However, if we look a little bit deeper all may not be as it seems: absolute deal numbers are significantly down, some 26% on Q2 2010 levels and at a level not seen since pre-2005. The top 25 announced deals in Q3 represent by value a quarter of all announced deals in Q3.

Wider deal confidence appears to remain fragile. Some of the bigger takeovers are being driven by competition between corporates which appear not to want to loose out on very specific targets. There does seem to be a loosening of the credit markets for corporates but this doesn't appear to ring true for the private equity firms, many of which still have un-invested cash and are focusing on exits rather than headline-grabbing new investments.

Traditionally Q4 has always seen deal activity ramp up as the end of the calendar year looms. Only time will tell if it tradition is sufficient to carry forward the momentum starting in Q3 2010.

Filed under: M&A, PE, takeover, dealmaking