M&A Recovery Remains Sluggish

Why has the slump in mergers and acquisitions continued, even as the U.S. economy and stock markets recover and European debt crisis eases?

Investment bankers don’t get paid to be pessimists. Throughout the current slump in takeovers, mergers and acquisitions (M&A) advisers have said a recovery was around the corner, awaiting a stronger U.S. economy, rising stock markets, or an end to the European debt crisis.

All three of those conditions have now been satisfied, yet deal-making has remained stagnant as CEOs continue to worry about the viability of the economic recovery. The final three months of 2013 saw announced takeovers slide by almost a third from a year earlier, even as the outlook improved in Europe and North America, according to data compiled by Bloomberg.

Writedowns on aluminum and coal deals led to the ouster of Rio Tinto Plc CEO Tom Albanese earlier this year—part of the hangover from a $1.1 trillion M&A spree in natural resources over the last decade. Energy and mining companies spent about $66 billion in transactions in the quarter, less than half the $155 billion in the same period of 2012.

In the U.S., while the shale gas and oil boom has led to increased takeovers of energy services and pipeline companies, it has depressed dealmaking in the exploration market, said Alan Klein, a partner with law firm Simpson Thacher & Bartlett LLP.

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