Announced M&A volumes of $38.8 billion were down 45% from the prior week. Completed M&A volumes of $72.8 billion improved by 38% from the prior week.
Sandler O’Neill’s Weekly M&A Trends:
Equity markets were mixed on light volume in the shortened holiday week
- The S&P 500 declined by 0.5% and the Russell 2000 growth index rose by 1% in the week. In 2Q12, the S&P 500 declined by 3.3% and the Russell 2000 growth index declined by 4.1%.
- Average daily U.S. equity trading volumes declined 21.6% in the week as volumes were light due to the July 4 holiday. 2Q12 volumes were flat with the 1Q12 weekly average. Average daily U.S. volumes reflect the total number of shares traded on Tape A, Tape B, and Tape C in millions.
- Equity mutual funds experienced net outflows of $1.1 billion in the week according to ICI data (on a one week lag). Flows into equity funds have been positive in two of the previous five weeks, after being negative in twelve of the prior thirteen weeks. In total, Equity mutual funds experienced net outflows of $22 billion in 2Q12. This is more than double the amount of net outflows experienced in 1Q12, but below the $80.7 billion net outflows in 3Q11.
- Volatility, measured by the average CBOE VIX, declined by 11.7% to 17, and the DB currency VIX rose slightly by 0.5% to 9.7.
Completed M&A was strong while capital raising and announced M&A activity levels were relatively soft
- Equity underwriting volumes of $4.1 billion declined by 66% from the prior week’s level. 2Q12 equity underwriting volumes averaged 20% below the 1Q12 weekly average level. While there were no IPOs priced in the week, two companies (Kayak Software Corp. and Palo Alto Networks Inc.) are scheduled to price their IPOs next week. Fender Musical Instruments Corp. also filed the terms of its IPO, though according to the Wall Street Journal, investor meetings have yet to start.
- Corporate debt underwriting volumes of $40.5 billion declined by 29% from the prior week. 2Q12 corporate debt underwriting volumes averaged 34% below the seasonally strong 1Q12 weekly average.
- Announced M&A volumes of $38.8 billion declined by 45% from the prior week. 2Q12 announced M&A volumes averaged 7% above the 1Q12 weekly average.
- Completed M&A volumes of $72.8 billion improved by 38% from the prior week. 2Q12 completed M&A volumes averaged 27% above the 1Q12 weekly average. A notable deal to close in the week was Duke Energy Corp.’s acquisition of Progress Energy Inc. for $25.6 billion.
FICC markets were also a bit weaker on low volume
- The Merrill Lynch high yield corporate bond spread (Merrill Lynch High Yield Corporate Bond Index less the 10-year treasury) widened (deteriorated) by 10 bps in the week to 621 bps. The spread had tightened (improved) for four consecutive weeks prior to this week and had tightened (improved) by 68 bps in June alone. However, in 2Q12, the index widened (deteriorated) by 62 bps.
- The CDX investment grade index (IG18) widened (deteriorated) by 1 bp in the week to 113 bps. The index widened (deteriorated) by 26 bps in 2Q12.
- The Markit iTraxx 5-year SovX Western Europe Index, which tracks Western European sovereign debt CDS (cost of insuring against default), rose (deteriorated) by 0.6% in the week, after declining (improving) for four consecutive weeks prior to this week. While the index rose (deteriorated) by 5% in 2Q12, the index declined (improved) by 14% in June alone, after rising (deteriorating) by 20% in May.
- Daily average bond trading volumes declined by 50% from the prior week. In 2Q12, volumes averaged 14% below the seasonally strong 1Q12 in the quarter. In the week, average investment grade bond volumes declined by 50%, average high yield bond volumes declined by 53%, and average convertible bond volumes declined by 43%.
- The AAA ABX-HE rose by 1.1% and the CMBX rose by 0.1% in the week.
- The trade-weighted U.S. Dollar Index (DXY) rose by 1.7% in the week while the Commodity Research Board Index (CRB) rose by 1%.
- The TED spread (3-month U.S. Treasuries vs. 3-month LIBOR), which is an indicator of perceived default risk, rose (deteriorated) by 1 bp in the week to 39 bps. The TED spread remains materially below the 464 bps reached during the peak of the 08-09′ credit crisis.