Announced M&A volumes of $49.8 billion improved by 24% from the prior week. M&A highlights included Cnooc’s announced acquisition of Nexen for $15 billion, NRG Energy’s announced acquisition of GenOn Energy for $1.7 billion, Genesee & Wyoming’s announced acquisition of RailAmerica for $1.4 billion, and Peets Coffee & Tea’s agreement to be taken private by Joh. A. Benckiser for $1 billion.
Sandler O’Neill’s Weekly M&A Trends:
Equity markets rose on higher volume
- The S&P 500 improved by 1.7% and the Russell 2000 growth index grew by 0.6% in the week. In 3Q12, the S&P 500 has risen by 1.7% while the Russell 2000 index has declined by 0.3%.
- Average daily U.S. equity trading volumes improved by 11.6% from the prior week. Thus far in 3Q12, volumes are averaging 12% 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 modest net inflows of $0.6 billion in the week according to ICI data (on a one week lag). After four consecutive weeks of net outflows, last week marked the first week of net inflows since the week ended June 15. In total, equity mutual funds have experienced $2.8 billion of net outflows in 3Q12 after experiencing net outflows of $22 billion in 2Q12.
- Volatility, measured by the average CBOE VIX, rose by 13.7% to 18.5, and the DB currency VIX rose by 6.2% to 9.3.
M&A activity picked up with a flurry of announcements early in the week
- Equity underwriting volumes of $7.2 billion declined by 50% from the prior week. Thus far in 3Q12, equity underwriting volumes are averaging 19% below the 2Q12 weekly average level.
- Corporate debt underwriting volumes of $47 billion declined by 25% from the prior week. Thus far in 3Q12, corporate debt underwriting volumes are averaging 17% above the 2Q12 weekly average level.
- Announced M&A volumes of $49.8 billion improved by 24% from the prior week. Thus far in 3Q12, announced M&A volumes are averaging 3% above the 2Q12 weekly average level.
- Completed M&A volumes of $34.5 billion more than doubled from the prior week. Thus far in 3Q12, completed M&A volumes are averaging 3% below the 2Q12 weekly average level.
Credit spreads improved and volume fell modestly
- The Merrill Lynch high yield corporate bond spread (Merrill Lynch High Yield Corporate Bond Index less the 10-year treasury) tightened (improved) by 9 bps in the week to 607 bps. After widening (deteriorating) by 62 bps in 2Q12, the spread has tightened (improved) by 4 bps thus far in 3Q12.
- The CDX investment grade index (IG18) tightened (improved) by 6 bps in the week to 105 bps. After widening (deteriorating) by 26 bps in 2Q12, the index has tightened (improved) by 7 bps 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% in the week, and has declined (improved) in seven of the prior eight 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) 7% thus far in 3Q12.
- Daily average bond trading volumes declined by 2% from the prior week. In the week, average investment grade bond volumes declined by 1%, average high yield bond volumes declined by 4%, and average convertible bond volumes declined by 10%. 3Q12 total bond volumes are averaging 15% below the 2Q12 weekly average.
- The AAA ABX-HE rose by 5.4% and the CMBX rose by 0.2% in the week.
- The trade-weighted U.S. Dollar Index (DXY) declined by 0.9% in the week while the Commodity Research Board Index (CRB) declined by 1.6%.
- The TED spread (3-month U.S. Treasuries vs. 3-month LIBOR), which is an indicator of perceived default risk, declined (improved) by 2 bps in the week to 35 bps. The TED spread remains materially below the 464 bps reached during the peak of the 08-09′ credit crisis.