Investment Banking M&A Down 30% [Weekly M&A Trends]

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Announced M&A volumes of $28.2 billion declined by 30% from the prior week. Thus far in 3Q12, announced M&A volumes are averaging 17% below the 2Q12 weekly average level.

Sandler O’Neill’s Weekly M&A Trends:

Equity markets were little changed on better volume

  • The S&P 500 improved by 0.2% and the Russell 2000 growth index declined by 0.9% in the week. In 3Q12, the S&P 500 has declined 0.4% while the Russell 2000 index has improved 0.1%.
  • Average daily U.S. equity trading volumes improved by 14.8% in the week as volumes were light in the prior week due to the July 4 holiday. 3Q12 volumes are averaging 20% below the 2Q12 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 $2.8 billion in the first week of 3Q12 according to ICI data (on a one week lag). 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, rose by 5.5% to 17.9, and the DB currency VIX declined by 3.9% to 9.3.

Capital raising volumes increased while M&A activity was softer on the week

  • Equity underwriting volumes of $9.8 billion more than doubled from the prior week’s relatively low level. Thus far in 3Q12, equity underwriting volumes are averaging 43% below the 2Q12 weekly average level. 2Q12 equity underwriting volumes averaged 21% below the 1Q12 weekly average level. There are 5 IPOs set to price this week, the largest of which is Palo Alto Networks Inc’s $263.8 million IPO and it is expected to begin trading on Thursday the 20th.
  • Corporate debt underwriting volumes of $73.7 billion improved by 82% from the prior week. Thus far in 3Q12, corporate debt underwriting volumes are averaging 16% above the 2Q12 weekly average level. 2Q12 corporate debt underwriting volumes averaged 34% below the seasonally strong 1Q12 weekly average.
  • Announced M&A volumes of $28.2 billion declined by 30% from the prior week. Thus far in 3Q12, announced M&A volumes are averaging 17% below the 2Q12 weekly average level. 2Q12 announced M&A volumes averaged 8% above the 1Q12 weekly average.
  • Completed M&A volumes of $15.1 billion declined by 80% from the prior week. Thus far in 3Q12, completed M&A volumes are averaging 15% above the 2Q12 weekly average level. 2Q12 completed M&A volumes averaged 26% above the 1Q12 weekly average.

FICC markets generally improved on higher volume

  • The Merrill Lynch high yield corporate bond spread (Merrill Lynch High Yield Corporate Bond Index less the 10-year treasury) widened (deteriorated) by 5 bps in the week to 626 bps. After widening (deteriorating) by 62 bps in 2Q12, the spread has widened by 16 bps thus far in 3Q12.
  • The CDX investment grade index (IG18) tightened (improved) by 1 bp in the week to 112 bps. After widening (deteriorating) by 26 bps in 2Q12, the index is flat in 3Q12 QTD.
  • The Markit iTraxx 5-year SovX Western Europe Index, which tracks Western European sovereign debt CDS (cost of insuring against default), declined (improved) by 3.7% in the week, and has declined (improved) in five of the prior six weeks. 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. The index has declined (improved) 3% thus far in 3Q12.
  • Daily average bond trading volumes nearly doubled from the prior week’s relatively low level. In the week, average investment grade bond volumes improved by 75%, average high yield bond volumes improved by 182%, and average convertible bond volumes improved by 72%.  3Q12  total bond volumes are averaging 28% below the 2Q12 weekly average. In 2Q12, volumes averaged 14% below the seasonally strong 1Q12 in the quarter.
  • The AAA ABX-HE rose by 2.5% and the CMBX rose by 0.3% in the week.
  • The trade-weighted U.S. Dollar Index (DXY) was flat in the week while the Commodity Research Board Index (CRB) rose by 2.5%.
  • The TED spread (3-month U.S. Treasuries vs. 3-month LIBOR), which is an indicator of perceived default risk, declined (improved) by 1 bp in the week to 37 bps. The TED spread remains materially below the 464 bps reached during the peak of the 08-09′ credit crisis
Disclosure: I do not have a position in any stocks mentioned in this article, do not have a plan to initiate a position within the next 72 hours.
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