World Investment Report 2009: Transnational Corporations - Unctad

CHAPTER I 11
Figure I.9. Value of global cross-border M&As and MSCI World Index, 1988–2009 a
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Source: UNCTAD cross-border M&A database; and Morgan Stanley Capital International, MSCI World Index.
a
For 2009, January–June only.
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Note: The MSCI All Country World Index is a free-float-adjusted market capitalization weighted index that is designed to measure the equity market
performance of developed and emerging markets. As atJanuary 2009, the MSCI index covered 46 countries: 23 developed and 23 emergingmarket
economies.
Several factors contributed to the decline. As
mentioned earlier, the sharp fall in share prices on
developed countries’ stock markets – where stock-market
indices plunged, on average by more than 40% in 2008 –
depressed the value of M&A transactions (annex table B.4).
The extent of the fall in share prices was similar in all major
developed economies: in the United States, the S&P 500
Index saw a 41% drop, in the euro area the DJ Euro Stoxx
50 fell by 44%, while in Japan the Nikkei fell by 44%. 12 In
developed countries, share prices of the financial services
industry plummeted by 60% and the value of cross-border
M&A purchases by 36%, although the number of crossborder
M&As shrank by only 14%.
The financial crisis has also made equity and debt
financing of M&A transactions more difficult and expensive.
Whereas normally during times of falling corporate profits,
companies tend to finance M&A deals with new stock,
with the rapidly falling stock markets this is less feasible.
Another impact of the crisis has been to reduce the cash
financing of M&As, which had been the main method
of funding in the boom years prior to 2008. At the same
time, the cost of debt financing for cross-border M&As has
risen, as bank lending conditions have deteriorated rapidly
following tightening credit conditions and rising interest
rate premiums for the corporate sector. One outcome of the
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had to be cancelled (table I.4). 13
Leveraged buyouts, which generally involve private
equity funds or hedge funds, nearly dried up during the
course of 2008 (section C), as banks hesitated to take the
risk of extending highly leveraged loans to these funds.
These funds had been among the main drivers of crossborder
M&As during the period 2005–2007. The rising
share of bank loans in the financing of M&As by private
equity funds aggravated the decline, as private equity firms
had less funds to finance M&As and as rolling over shortterm
debt became more difficult.
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In developed countries, the number of
mega deals declined from 274 in 2007 to 203
in 2008. In contrast, in developing countries,
M&A activity remained strong in 2008, with
41 mega deals concluded, compared with 35
such deals in 2007. In the transition economies
the number decreased: 7 in 2008 compared
with 10 in 2007.
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Table I.3. Cross-border M&As (valued at over
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Year
Number of
deals
Percentage
of total
Value
($billion)
Percentage
of total
1987 19 1.6 39 40.1
1988 24 1.3 53 38.7
1989 31 1.1 68 40.8
1990 48 1.4 84 41.7
1991 13 0.3 32 27.0
1992 12 0.3 24 21.0
1993 18 0.5 38 30.5
1994 36 0.8 73 42.5
1995 44 0.8 97 41.9
1996 48 0.8 100 37.9
1997 73 1.1 146 39.4
1998 111 1.4 409 59.0
1999 137 1.5 578 64.0
2000 207 2.1 999 74.0
2001 137 1.7 451 61.7
2002 105 1.6 266 55.0
2003 78 1.2 184 44.8
2004 111 1.5 291 51.5
2005 182 2.1 569 61.3
2006 215 2.4 711 63.6
2007 319 3.0 1 197 70.4
2008 251 2.6 823 68.3
2009 a 40 1.2 171 67.2
Source: UNCTAD, cross-border M&A database (www.unctad.
org/fdistatistics).
a For 2009, January–June only.