Dealmaking slump spells pain for investment banks - poll

LONDON (Reuters) - Facing deepening concern over the euro zone and choppy stock market conditions, European companies will shy away from aggressive spending and dealmaking and concentrate on selling off assets, a global poll of firms showed.

The caution shown by companies in the survey is bad news for investment banks, already struggling to reel in fees as dealmaking slumps and after the collapse of several large mergers.

Company officials predicted worldwide mergers and acquisitions would grow by 12 percent in 2013, far less than their upbeat forecast of a 22 percent rise in deals a year ago, a Thomson Reuters and Freeman Consulting survey found.

The nature of deals is also changing, as uncertainty in Europe, in the grip of debt crisis for three years now, means companies are opting for smaller or less risky takeovers, and planning to spend less cash on acquisitions and more on investors, via share buybacks or dividends.

Only 40 percent of 141 company officials surveyed are interested in expanding geographically in 2013, versus 60 percent a year ago.

Firms refocusing may instead be a source of deals, especially as revenue forecasts shrink. Shedding non-core assets was cited as a key M&A (merger and acquisition) goal by over half of respondents in Europe, the Middle East and Africa, compared to 36 percent in 2012 forecasts.

Asian and American companies signalled their growing interest in undervalued assets in the survey.

The dealmaking slowdown comes at a time when some large deals have collapsed.

Banks advising defence groups BAE Systems and EADS on their proposed tie-up lost more than $100 million in shared fees when the deal was abandoned last week, and global M&A fees were down over 21 percent in the first nine months of 2012.

Company officials surveyed also struck a blow to hopes of a rebound in equity issuance, especially in Europe, where share sales and rights issues have been hampered by rocky markets.

Financial firms forecast another wave of capital raising, and businesses in the Americas predicted stock market listings would grow in 2013, but overall respondents forecast only a 4 percent rise in equity volumes.

LOW FEES A PLUS

Companies do plan to tap the bond markets for funding as bank lending dries up, providing advisers with one bright spot. Volumes could exceed the $1.5 trillion of bonds issued in 2009 as firms recovered from the financing crisis.

Even so, advisers may have to battle harder to win business, and earn less for their efforts.

Traditionally, long-standing relationships established through lending help banks win mandates, but the survey showed company officials now prioritised low fees over existing relationships when selecting a bank.

Weaker fee income has already led investment banks to slash pay and jobs, with well over 130,000 layoffs hitting major firms since 2011. Germany's Deutsche Bank and Japan's Nomura are among those leading yet another recent round of job cuts.

The survey confirmed this trend was likely to continue, with only 8 percent of respondents from the financial industry predicting increased hiring in 2013.

Financial and real estate companies made up 18 percent of the firms surveyed. Healthcare firms - the most optimistic in terms of deal growth next year - made up the largest chunk of the poll, while energy and power and media groups were also among those surveyed.

More than half of the companies officials, from a mix of small regional businesses to conglomerates worth over $200 billion, came from the Americas.

(Reporting by Sarah White; Editing by Louise Heavens)

Source: http://news.yahoo.com/dealmaking-slump-spells-pain-investment-banks-poll-131025983--finance.html

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