Announced M&A volumes of $24.3 billion improved by 16% from the prior week. In 3Q12, announced M&A volumes averaged 11% below the 2Q12 weekly average level and 14% below the 3Q11 average weekly level.

Sandler O’Neill’s Weekly M&A Trends:

Equity markets declined for the second week in a row

• The S&P 500 declined by 1.3% in the week and the Russell 2000 growth index declined by 2.0% in the week. In 3Q12, the S&P 500 rose by 5.8% while the Russell 2000 index improved by 4.7%.
• Average daily U.S. equity trading volumes declined by 5.2% from the prior week. In 3Q12, volumes averaged 13% below the 2Q12 weekly average and 32% 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 $5.2 billion in the week according to ICI data (on a one week lag). Equity mutual funds experienced $40.8 billion of net outflows in 3Q12 after experiencing net outflows of $22 billion in 2Q12 and $80.7 billion of net outflows in 3Q11. 3Q12 experienced the highest level of net outflows from equity mutual funds since the $64.1 billion of net outflows seen in 4Q11.
• Volatility, measured by the average CBOE VIX, increased by 8.9% to 15.4, and the DB currency VIX declined by 0.7% to 8.04.

Both announced and completed M&A improved but remain light while equity and debt underwriting were solid on the week

• Equity underwriting volumes of $19.4 billion improved by 21% from the prior week. In 3Q12, equity underwriting volumes averaged 17% above both the 2Q12 weekly average level and the 3Q11 average weekly level. The week was highlighted by Santander Mexico Financial Group’s $2.9 billion IPO, which priced on September 26 and has returned over 13% through Monday. According to Nasdaq, there are eight IPO’s set to price this week, the largest of which is Berry Plastics Group Inc.’s $608.8 million IPO, which is set to price on October 4.
• Corporate debt underwriting volumes of $61 billion declined by 37% from last week’s relatively elevated level. In 3Q12, corporate debt underwriting volumes averaged 36% above the 2Q12 weekly average level and 90% above the 3Q11 weekly average level.
• Announced M&A volumes of $24.3 billion improved by 16% from the prior week. In 3Q12, announced M&A volumes averaged 11% below the 2Q12 weekly average level and 14% below the 3Q11 average weekly level.
• Completed M&A volumes of $24.7 billion improved by 32% from the prior week. In 3Q12, completed M&A volumes averaged 20% below the 2Q12 weekly average level and 4% below the 3Q11 average weekly level.

Credit spreads widened on lighter volume

• The Merrill Lynch high yield corporate bond spread (Merrill Lynch High Yield Corporate Bond Index less the 10-year treasury) widened (deteriorated) by 25 bps in the week to 548 bps. After widening (deteriorating) by 62 bps in 2Q12, the spread tightened (improved) by 62 bps in 3Q12.
• The CDX investment grade index (IG18) widened (deteriorated) by 3 bps in the week to 90 bps. After widening (deteriorating) by 26 bps in 2Q12, the index tightened (improved) by 22 bps in 3Q12.
• The Markit iTraxx 5-year SovX Western Europe Index, which tracks Western European sovereign debt CDS (cost of insuring against default), rose (deteriorated) by 12% in the week, but has declined (improved) in fifteen of the prior seventeen weeks. While the index rose (deteriorated) by 5% in 2Q12, the index declined (improved) 48% in 3Q12.
• Daily average bond trading volumes declined by 3% from the prior week. In the week, average investment grade bond volumes declined by 1%, average high yield bond volumes declined by 8%, and average convertible bond volumes increased by 10%. 3Q12 total bond volumes averaged 5% below the 2Q12 weekly average and were flat with the 3Q11 weekly average.
• The AAA ABX-HE declined by 4% in the week and the CMBX declined by 0.4% in the week.
• The trade-weighted U.S. Dollar Index (DXY) rose by 0.8% in the week and the Commodity Research Board Index (CRB) rose by 0.1%.
• The TED spread (3-month U.S. Treasuries vs. 3-month LIBOR), which is an indicator of perceived default risk, was flat in the week at 27 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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