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U.S. markets continue a prolonged downturn on Thursday. Each major index was down over 1.5 percent over the last five trading days as market participants either sell or sit on their hands. The progress of the fiscal cliff discussions in Washington is effectively a mystery to observers, with every round of optimism meeting an equal and opposite round of pessimism.
As a result of the lack of action in Washington, CEOs are sitting on over $3.5 trillion in cash and liquid assets, a record amount of money that may as well be hidden in America’s corporate mattress. No one wants to be the company that played too aggressively in 2012 and didn’t have a war chest big enough to weather whatever fiscal storm may brew in 2013.
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The two major domestic issues that now loom over the U.S. economy are the fiscal cliff and the approaching debt ceiling, which will both present themselves with the start of the new year if Congress fails to find a solution. The prospect of severe austerity is compounded by America’s continuing struggle with its legal borrowing limit, and the combination has all but thwarted participation in the market. Slowing growth in major developing economies such as China and the European debt crisis complete the shadowy picture of the global economy.
But despite all the doom and gloom, holiday spending may not be the only fourth-quarter economic fuel. Data compiled by Bloomberg shows that while total merger and acquisition activity for full fiscal year was 10 percent lower than 2011, about $691.9 billion in purchases were announced worldwide in the last period, the highest level since the third-quarter of 2008. Overall 2012 transactions reached $2.19 trillion…
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“Wait and see has been the dominant attitude of corporations’ approach to acquisitions because of the macroeconomic uncertainty due to the U.S. fiscal cliff and the euro debt crisis,” said Gene Sykes, global head of M&A at Goldman Sachs, to Bloomberg. Goldman Sachs oversaw $542 billion in deals around the world, leading the pack for the second year in a row. “Once these crises find a solution there will likely be a rebound in activity driven by continuing consolidation in natural resources, industrials, technology and financial services.”
That consolidation was evidenced by Deutsche Telekom AG’s $29 billion fourth-quarter merger with MetroPCS Communications (NYSE:PCS), and Softbank’s $20 billion purchase of 70 percent of Sprint Nextel (NYSE:S). About $86 billion in telecommunications deals were announced during the quarter.
The fourth-quarter also saw the largest deal of the year, which was Glencore International’s $34 billion purchase of Xstrata, a move that created the fourth-largest mining company in the world. Also notable was the proposed $8.2 billion takeover of NYSE Euronext (NYSE:NYX) by IntercontinentalExchange (NYSE:ICE).
Bloomberg also reports that European companies announced a 73 percent quarter-to-quarter jump in deal activity. Slow but substantial progress toward a solution to Greece’s debt crisis and regional economic weakness has helped create confidence in an economic rebound.
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