November 14, 2008 / 7:27 PM / 10 years ago

Weak market pushes deal-failures to record

PHILADELPHIA (Reuters) - The rate of failed deals has hit a record high level as the lack of available credit, volatile equity markets and concerns about the global economic crisis offset any urge to merge.

One-third of the U.S. deals announced in 2008 have been withdrawn or failed to closed, according to data from UBS AG UBSN.VX. There have been more than 33,200 deals announced globally this year, according to Thomson Reuters (TRI.TO)TRIL.L.

“Every single transaction we see is harder to get done, with the probability of getting from beginning to end being lower given all the volatility in the equity and debt markets,” said Jeffrey Stute, co-head of North America mergers and acquisitions at JP Morgan Chase & Co (JPM.N).

Even compared with previous deal droughts, this year is particularly bad.

The success rate of closed deals, in terms of the number of transactions, is at its lowest rate in the 14 years reviewed in the UBS study, outpacing the carnage seen in 2001-2003 after the Internet bubble, UBS data showed.

Only 67 percent of deals have closed so far this year, down from 73 percent for all of 2007, and from the record high success-rate of 81 percent in 2005, UBS said.

When evaluating deals on the basis of total dollar value, two-thirds of total deal volume faltered this year, UBS data showed.

“Completion-risk is on everyone’s mind. We are, on a historical perspective, amid the lowest level of deal completion,” said Cary Kochman, Co-Head of M&A for the Americas at UBS. “2008 was marked by high-profile broken deals and an intense level of litigation.”


Chip equipment maker Applied Materials (AMAT.O) and private equity firm Francisco Partners on Friday said they have walked away from an approach to buy key units of Dutch rival ASM International (ASMI.AS).

Other troubled or failed deals include Hexion Specialty Chemicals and Huntsman Corp (HUN.N), which remain locked in a legal battle over their deadlocked deal, and Samsung Electronics Co Ltd (005930.KS), which walked away from its $5.9 billion unsolicited bid for flash-memory card maker SanDisk CorpSNDK.O.

What lies ahead? Perhaps even more pain.

“I expect to see more busted deals. We will see a healthy percentage of transactions not get to closing even after going through a thoughtful process. The certainty of closure is less now,” said Paul Parker, Barclays Capital’s BARCBC.UL head of global mergers and acquisitions.

Two mega-deals, however, continued to move ahead as scheduled, which may ease some concerns about banks’ ability and willingness to fund deals, bankers said.

On Friday, InBev NV INTB.BR moved closer to completing its $52 billion takeover of Anheuser-Busch Cos Inc (BUD.N) after U.S. antitrust regulators approved the deal, with conditions, marking the last hurdle for the deal. InBev also was poised to receive $54.8 billion in loans next week, banking sources close to the deal previously told Reuters.

Separately, Toronto-Dominion Bank (TD.TO) Chief Executive Ed Clark told Reuters Global Finance Summit that he remained committed to financing the massive leveraged buyout of BCE Inc (BCE.TO), Canada’s biggest telecommunications company.

TD Securities, a unit of TD Bank, is among the banks that have agreed to finance the deal alongside Citigroup (C.N) , Deutsche Bank (DBKGn.DE) and Royal Bank of Scotland (RBS.L).

“Those deals had to close. They were to bellwether deals. If they didn’t (close), there would be endless litigation and the rest of us could go home until 2010,” said one merger attorney who declined to be named because he was not authorized to speak to the media.

(Editing by Leslie Gevirtz)

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