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Mergers, when two companies combine, and acquisitions, when one company buys another, are inherently risky: Will the two sides play nice? Does either company have hidden losses or other dark secrets? Will the combo be too big to manage? The riskiness of deals is exactly what makes them an important window on the economy. More M&A signals that companies are hopeful about the future and confident in their own strength. If the latest M&A data is any indication, companies are neither particularly hopeful nor particularly confident. Dealogic estimates that private-equity firms have sold off more than they've bought in M&A deals so far this year. That's happened in only two other six-month periods since the firm started keeping records in 1995. And forget about Europe: As a result of the European financial crisis, deals targeting Spanish companies plunged 82 percent by volume in the first half of this year, to their lowest six-month total since 1997. Deals targeting French companies skidded 67 percent. Even emerging markets, where many companies have turned for growth in recent years as the U.S. and Europe cooled, are losing their shine. M&A volume fell in Brazil, Russia and India, overshadowing an increase in China.
"People have come to realize how difficult it is to integrate companies" from emerging-market countries, says Tom Sauermilch, partner and co-head of the M&A practice at law firm McDermott Will & Emery. "Lots of management time is devoted to them, you have to be very patient
-- culture, travel, and compliance" are the big challenges. Still, there are a few pockets where business is brisk. Stephen Guy, managing director at KPMG Corporate Finance, says two groups of U.S. companies are driving what M&A business there is. The first consists of owners of smaller private companies who want to sell before higher capital-gains taxes kick in Jan. 1 that would make it less lucrative to sell in the future. The second involves large companies that want to prune units that are less profitable or no longer fit their strategy. But Guy also said that sellers have lower expectations for what they can get, even compared to just 18 months ago. "They're pretty pessimistic about the next 12 months," Guy says, "so they're thinking,
'Better take what I can get.'"
[Associated
Press;
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