Mergers and Acquisitions Shrink the World.(saya)(Thomson Financial Securities Data report)

US corporations and their credit departments will face larger competitors in Europe, Latin America and Asia as global merger and acquisition activity steams ahead at near record-breaking levels. Worldwide merger and acquisition activity reached $2.9 trillion in the first eleven months of 2000 despite a sharp third-quarter drop in M&A activity, according to Thomson Financial Securities Data. Although the total volume of M&As in 2000 fell well short of 1999s all-time high of $3.43 trillion, it topped the 1998 level of $2.52 trillion, the record before the 1999 tidal wave.

The continued high level of M&A activity in 2000 is notable, but perhaps more important is the fact that one third of all mergers and acquisitions in 2000 were cross-border deals. In addition, M&A activity in Europe and Latin America grew at a faster pace than in the US, and activity in Asia accelerated sharply. For the second year in a row, the telecommunications industry remained a hot industry for M&A worldwide and accounted for a significant portion of the deals in both Europe and Latin America. Credit professionals should prepare now for tougher competition from European competitors and a growing challenge from Latin and Asian companies (Chart 1).

US Activity Slows

The first half of 2000 showed record-setting worldwide M&A activity despite a noticeable slump in the second quarter. In the first half of 2000, announced M&A volume stood at $1.88 trillion on 17,777 deals, with only $753 billion of this activity occurring during the second quarter, according to Thomson Financial Securities Data. In the US, the number of deals announced in the first half of 2000 was down nearly 15 percent from a year earlier, but heightened M&A activity in Europe more than compensated for the slowdown in the US.

Heavy European M&A activity continued into the third quarter of 2000, with European firms continuing to buy up US companies. European acquisitions of US firms accounted for one fourth of all US M&A activity for the period. The largest third quarter 2000 deal worldwide was Deutsche Telekom's $55 billion bid for VoiceStream Wireless. Deutsche Telekom has been involved in more than 20 acquisitions over the past year. Volume in cross border transactions--mergers or acquisitions involving targets and acquirers from different nations--exceeded $616 billion in the first half of 2000. Cross-border deals involving a foreign acquirer and a US target company totaled more than $154 billion (Chart 2).

Overall, third quarter 2000 worldwide M&A volume hit $787 billion, bringing the first three quarters total to $2.68 trillion, up from the $2.28 trillion reported for the first three quarters of 1999. Telecommunications dominated all industries for M&A activity, with more than $339 billion in transactions, followed by the motion picture industry with $241 billion.

Through mid-November 2000, there were $1.6 trillion in deals involving US companies as targets, up from $1.4 billion for the same period in 1999, but America Online Inc.'s merger with Time Warner Inc. accounted for 11 percent of the US total for 2000. Without that megadeal, the numbers for 2000 would show a slowing of merger and acquisition activity in the US.