Mergers and Acquisitions Volumes Down 60%

Announced M&A volumes of $16.6 billion declined by 60% from the prior week. Thus far in 3Q12, announced M&A volumes are averaging 9% below the 2Q12 weekly average level and 12% below the 3Q11 average weekly level.

Sandler O’Neill’s Weekly M&A Trends:

The S&P 500 had its best week since early June

  • The S&P 500 rose by 2.2% in the week and the Russell 2000 growth index rose by 3.7% in the week. In 3Q12, the S&P 500 has risen by 5.6% while the Russell 2000 index has improved by 5.4%.
  • Average daily U.S. equity trading volumes rose by 34% from the prior week. Thus far in 3Q12, volumes are averaging 15% below the 2Q12 weekly average and 34% below the 3Q11 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 $4.4 billion in the week according to ICI data (on a one week lag). Net outflows from equity mutual funds totaled $22.9 billion in August, the highest monthly amount experienced since the $32.8 billion of net outflows experienced in December 2011. Equity mutual funds have experienced $29 billion of net outflows thus far in 3Q12 after experiencing net outflows of $22 billion in 2Q12 and $80.7 billion of net outflows in 3Q11.
  • Volatility, measured by the average CBOE VIX, declined by 3.6% to 16.4, and the DB currency VIX declined by 10.9% to 8.2.

Debt underwriting had its best week since May 2011 and equity underwriting also improved significantly while M&A activity was quite light

  • Equity underwriting volumes of $17.2 billion more than tripled from the prior week. Thus far in 3Q12, equity underwriting volumes are averaging 12% below both the 2Q12 weekly average level and the 3Q11 average weekly level. Notable deals in the week included ING’s $3 billion offering of its shares in Capital One and A.I.G.’s $2 billion offering of its shares in the A.I.A. Group.
  • Corporate debt underwriting volumes of $98 billion nearly tripled from the prior week. Thus far in 3Q12, corporate debt underwriting volumes are averaging 19% above the 2Q12 weekly average level and 67% above the 3Q11 weekly average level.
  • Announced M&A volumes of $16.6 billion declined by 60% from the prior week. Thus far in 3Q12, announced M&A volumes are averaging 9% below the 2Q12 weekly average level and 12% below the 3Q11 average weekly level.
  • Completed M&A volumes of $11.9 billion improved by 13% from the prior week. Thus far in 3Q12, completed M&A volumes are averaging 15% below the 2Q12 weekly average level and 1% below the 3Q11 average weekly level.

Credit spreads tightened and volume picked up as the summer doldrums came to an end

  • The Merrill Lynch high yield corporate bond spread (Merrill Lynch High Yield Corporate Bond Index less the 10-year treasury) tightened (improved) by 26 bps in the week to 555 bps. After widening (deteriorating) by 62 bps in 2Q12, the spread has tightened (improved) by 56 bps thus far in 3Q12.
  • The CDX investment grade index (IG18) tightened (improved) by 9 bps in the week to 93 bps. After widening (deteriorating) by 26 bps in 2Q12, the index has tightened (improved) by 19 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 18.3% in the week, and has declined (improved) in thirteen of the prior fourteen weeks. While the index rose (deteriorated) by 5% in 2Q12, the index has declined (improved) 33% thus far in 3Q12.
  • Daily average bond trading volumes rose by 57% from the prior week. In the week, average investment grade bond volumes rose by 41%, average high yield bond volumes rose by 106%, and average convertible bond volumes rose by 56%. 3Q12 total bond volumes are averaging 12% below the 2Q12 weekly average and 7% below the 3Q11 weekly average.
  • The AAA ABX-HE was rose by 2.8% in the week and the CMBX rose by 0.4% in the week.
  • The trade-weighted U.S. Dollar Index (DXY) declined by 1.2% in the week and the Commodity Research Board Index (CRB) rose by 0.7%.
  • The TED spread (3-month U.S. Treasuries vs. 3-month LIBOR), which is an indicator of perceived default risk, tightened (improved) by 4 bps in the week to 31 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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