Making sense of M&A news by BCG - Contd.

Following up on my previous post, another insight is:
The market cap of all companies last year was close to $60 trillion. Compare that with this year's market cap of $40 trillion or around 33% lesser.

Also, in light of the slowdown and cautiousness in corporate environment these days, one can expect the conversion ratio to fall somewhat. Maybe from around 20% to 15%.

Then M&A volume would drop by around 33*1.25 = 42%.

So, the value add by a consultant here is the fact that conversion ratios for M&A transactions would drop from 20% to 15%.

Making sense of M&A news by BCG

Making sense of BCG's M&A news:

M&A volumes are supposed to be falling by upto 46% in this quarter compared to last year levels, according to a recent BCG study. The study also mentions that companies will increasingly carry out stress testing of their own businesses and the acquired businesses during deal-making stages.

Of the companies interviewed and assessed by the study, around 20% of the companies were classified as "predators" and another 20% as "prey" ... while the other 60% could be either predators or preys based on how they deal with the slowdown. That means at a conversion ratio of 10%, around 2% of companies are expected to carry out M&A transactions.
Estimating the worth of all corporate wealth based on the market cap, we have a figure of US $40 trillion.

2% of that comes up to a little under $1 trillion or $800 billion to be precise.

Based on a Reuters article from April last year, the Global M&A volume reached levels of $ 1 trillion in just 107 days, which itself was a decline of 27% from 2007.

http://www.reuters.com/article/privateEquity/idUSN1742497620080417

"It took 107 days for merger volume to hit the $1 trillion mark in 2008, compared with 85 days in 2007 and 93 days in 2006." the article says.

The 46% decline then makes sense with a conversion ratio of around 20%.


That implies a volume of $2 trillion in 2009, which would have taken 220 days in 2008 but will take 220/(1-.46) ~ 400 days ~ 1 yr in 2009 because of 46% decline.

Bottomline: Around 20% of M&A deals between predators and preys goes to conclusion.