The growth of crossborder M&A activity in recent years, including 2007, was due to sustained strong economic growth in most regions of the world, high corporate profits and competitive pressures that motivated TNCs to strengthen their competitiveness by acquiring foreign firms.
In addition,
financing conditions for
debt financed M&As were
relatively favourable.
Despite a change in lending
behaviour since mid
2007, caused by a general
reassessment of credit risk,
the growth of cross-border
M&As in the second half of
2007 reached a peak of $879
billion.
This was essentially
due to the completion of large
deals, many of which had
begun earlier. More cautious
lending behaviour of banks
hampered M&A financing in
the first half of 2008 (figure
I.5), especially the financing
of larger acquisitions, which
plummeted to their lowest
semi annual level since
the first half of 2006.
The number of greenfield projects
remained almost at the same
level in the first quarter
of 2008 as in the previous
quarter.
However, the current crisis
has led to a liquidity crisis in
money and debt markets in many
developed countries. This liquidity
crisis has begun to depress the
M&A business in 2008, especially
leveraged buyout transactions
(LBOs), which normally involve
private equity funds.
Indeed, the
buyout activities by private equity
funds, a major driver of crossborder
M&As in recent years,
are currently slowing down. This
contrasts with the situation in
once the financial markets recover, and they should
continue to be important direct investors.