Global mergers and acquisitions rose to the highest level infour years this quarter, as a surge in U.S. deals provided groundfor optimism and salvaged what had been the worst year fortakeovers since the financial crisis.

Companies worldwide have announced $691.9 billion in purchasesin the final three months of the year, the most since the thirdquarter of 2008, according to data compiled by Bloomberg. Whiletransactions for all of 2012 shrank about 10 percent to $2.19trillion, the same level as 2010, about $86 billion oftelecommunications deals, including Softbank Corp.'s plannedpurchase of a stake in Sprint Nextel Corp., gave the end of theyear a boost.

Chief executive officers sitting on more than $3.5 trillion incash held off on deals for most of 2012 as Europe slid intorecession, developing economies such as China cooled and $600billion in possible spending cuts and tax increases threatened U.S.growth. The pickup in takeovers may extend into next year asAmerican and European lawmakers take more decisive steps to fortifythe global economic recovery, said Gene Sykes, global head ofM&A at Goldman Sachs Group Inc.

“Wait and see has been the dominant attitude of corporations'approach to acquisitions because of the macroeconomic uncertaintydue to the U.S. fiscal cliff and the euro debt crisis,” said Sykes,whose New York-based firm was the top adviser on M&A globallythis year. “Once these crises find a solution there will likely bea rebound in activity driven by continuing consolidation in naturalresources, industrials, technology and financial services.”

Goldman Sachs and the other busiest advisers on takeovers thisyear — Morgan Stanley, JPMorgan Chase & Co., Citigroup Inc.,Credit Suisse Group AG and Barclays Plc — all played a role in2012's biggest takeover, Glencore International Plc's $34 billionpurchase of Xstrata Plc to create the world's fourth-biggest miningcompany. Goldman Sachs led the league table for the second year ina row, with $542 billion of deals, data compiled by Bloombergshow.

The three biggest acquisitions of the year besidesGlencore-Xstrata were all announced this quarter, whileIntercontinentalExchange Inc.'s $8.2 billion purchase of NYSEEuronext led $77 billion in transactions announced during last weekalone, the data show. At the end of the third quarter, the pace ofdeals was set to result in the worst year since 2009.

Telecommunications deals have dominated the recovery thisquarter, as Tokyo-based Softbank agreed to pay about $20 billionfor 70 percent of Sprint and Deutsche Telekom AG's T-Mobile USAunit agreed to a $29 billion combination with MetroPCSCommunications Inc.

U.S. Growth

Softbank's entry into the U.S. through the deal with Sprint isallowing its billionaire owner Masayoshi Son to participate in amarket that's still growing in contrast to Japan, where handsetshipments tumbled 27 percent during the past five years.

The American economy will expand 2 percent next year and 2.8percent in 2014, more than double the rate of both Japan and theeuro area in each year, according to economists' estimates compiledby Bloomberg.

The U.S. has the potential to boost both economic growth andsentiment among CEOs further next year if President Barack Obamareaches an agreement with the Republican-led U.S. Congress to avertmore than $600 billion in spending cuts and tax increases, known asthe fiscal cliff, set to take effect in January, according tobankers. Obama and Congress return to Washington today and havefive days to reach a deal.

“Notwithstanding the concerns we have about anemic growth in theU.S., the country looks good on a relative basis,” said ChristopherLawrence, New York-based deputy chairman of Rothschild's globalinvestment-banking business. “As a result, the U.S. is attractingthe interest of well-capitalized non- American corporations.”

European companies were also more active this quarter, withdeals increasing 73 percent from the previous three months to $176billion. The European Union summit on Dec. 13 and Dec. 14 closedout a year in which policy makers bolstered the 17-nation singlecurrency by setting up fiscal rules for indebted states, apermanent bailout fund, a central-bank bond-buying program and aroad map for tighter banking and fiscal union. Still, Italian PrimeMinister Mario Monti's resignation, announced Dec. 21, may threatento overshadow some of the progress.

“People are a bit more confident that the euro zone isn't goingto collapse like they feared a few months ago,” said GiuseppeMonarchi, co-head of Europe, Middle East and Africa M&A atCredit Suisse in London. “It's not inconceivable that we'll see apickup later next year, but we still need more visibility on themacro side to feed CEO confidence.”

No Growth

The largest European acquisition this quarter was OAO Rosneft'sagreement in October to buy TNK-BP, a 50-50 venture between BP Plcand a group of billionaires, for $54.8 billion. The acquisition wasthe third-biggest ever in the oil industry, according to datacompiled by Bloomberg.

That purchase dwarfed other European deals this quarter, such asSiemens AG's proposed purchase of Invensys Plc's rail unit for 1.74billion pounds ($2.8 billion). Siemens Chief Executive OfficerPeter Loescher embarked on his biggest purchase in half a decadewith the Invensys takeover after building up a cash pile of morethan 11 billion euros ($15 billion).

“European companies have strong balance sheets and low economicgrowth in their markets, which means they have to acquire to grow,”said Henrik Aslaksen, Frankfurt-based Deutsche Bank AG's globalhead of M&A in London.

Takeovers by Asian companies in the fourth quarter rose to theirhighest level in more than a year, helped by Softbank's Sprintpurchase. The deal was the biggest publicly announced outboundpurchase by a Japanese company on record and marks the mostacquisitive quarter for Japanese firms in a decade, according todata compiled by Bloomberg. Still, overall Asian transactions forall of 2012 were almost unchanged from 2011, according to datacompiled by Bloomberg.

Appetite for deals has stalled with economic growth in Asia ontrack to slow to 6.2 percent in 2012, the smallest expansion since2009, according to data compiled by Bloomberg. China's economy,Asia's largest, may grow 7.7 percent in 2012, the lowest levelsince 1999, the data show. Still, the country's slowdown “appearsto now have bottomed out,” the World Bank said on Dec. 19.

China is still beefing up global reserves to feed demand in theworld's second-largest economy, which accounted for half of theworld's oil consumption growth in 2011, according to the U.S.Energy Information Administration. Canada approved this monthBeijing-based Cnooc Ltd.'s $15.1 billion takeover of Nexen Inc.,the largest foreign deal by a Chinese company, data compiled byBloomberg show.

Growth Abroad

Overall, cross-border takeovers accounted for about half allannounced deals this year. Appetite for growth abroad could lead toan improvement in global volumes next year, according to HernanCristerna, head of M&A for Europe, the Middle East and Africaat JPMorgan in London.

“The driver will likely be cross-border activity,” saidCristerna. “We're seeing much more interest in deal making.”

Private-equity firms also have capacity to contribute as theylook to unload assets acquired in 2006 and 2007, when $1.3 trillionin leveraged buyouts took place. In 2012, private- equityacquisitions slumped to $211 billion, the lowest level since 2009,according to Bloomberg data.

“There's quite a backlog of assets that buyout firms are keen toeither spin off or find new owners for,” said Scott Matlock,London-based chairman of international M&A at Morgan Stanley.“In fact, many assets bought around 2006 and 2007 are particularlyripe for new ownership.”

Companies also have strong balance sheets and access to“attractively priced funding,” which should support acquisitions,Matlock said.

The extra yield investors demand to hold corporate bondsworldwide from the most creditworthy to the riskiest fell to 219basis points as of Dec. 24 from 345 basis points a year earlier,according to the Bank of America Merrill Lynch Global Corporate& High Yield index. Sales of the debt have exceeded $3.9trillion this year, surpassing the 2009 record. A basis point is0.01 percentage point.

The average size of deals this year was $149 million, with 97percent of the transactions under $500 million, and 14 exceeding$10 billion, according to Bloomberg data. Companies have been morefocused on selling non-strategic businesses and making smalleracquisitions than transformational deals, said Mark Warham, co-headof M&A in EMEA at Barclays in London.

“We're seeing more of the portfolio rebalancing than megamergers and that sort of activity will continue,” Warham said.“Maybe as markets continue to settle, we'll see people being a bitmore ambitious.”

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