BARCLAYS PLC 
By 
Some U.S. companies took advantage of cheap financing and abundant cash to strike big deals early this year. More chief executive officers have recently taken a pause, though, partly because of worries that they might find themselves overpaying for assets if interest rates rise, which would likely pull stock markets lower.
Dealmakers say activity may slow down further in coming months. Outside the United States, confidence has yet to return in austerity-hit Europe, and many Asia-Pacific economies such as China have been slowing after years of blistering growth.
"Many people believe that the stock market has run up in a way that's unnatural, supported by the lack of yield in the fixed income market and government-supported low interest rates," said Paul Parker, head of global corporate finance and M&A at Barclays (>> Barclays PLC).
"If you believe that there's going to be a stock market correction, you'd need to be cautious about agreeing to a transaction in cash or largely in cash."
Global deal volume fell 9 percent to $978.8 billion (641.5 billion pounds) in the first six months of the year, down from $1.07 trillion a year earlier. This was the weakest performance since the first half of 2009, when volumes totalled $900.8 billion, according to Thomson Reuters data as of June 25.
In Europe, volume fell 43 percent to a 16-year low of $221 billion, just 22.6 percent of global dealmaking, the data shows. Asia-Pacific volume declined 3 percent to $173.5 billion.
The U.S. market fared better. A handful of large deals, such as H.J. Heinz Co's
"Big, well-capitalized companies with strategic imperatives want to deploy their cash, want to take advantage of historically low interest rates, and during the first half of the year have put their money to work," Parker said. "It is still a tough environment for smaller companies."
Investment bankers said dealmaking would likely pick up in the fourth quarter as companies accept the inevitable transition from historically low interest rates.
U.S. equity markets have fallen in recent weeks, and volatility has spiked, after Federal Reserve Chairman Ben Bernanke said the central bank would begin to slow the pace of its bond-buying stimulus later this year.
The bond-buying program had helped push interest rates to all-time lows, which in turn created cheap financing for M&A transactions.
Goldman Sachs Group Inc (>> Goldman Sachs Group Inc) was the top M&A adviser worldwide, with $248.6 billion worth of deals over the period. JPMorgan Chase & Co (>> JPMorgan Chase & Co.), Morgan Stanley (>> Morgan Stanley), Bank of America Merrill Lynch (>> Bank of America Corp) and Credit Suisse Group AG (>> Credit Suisse Group AG) rounded out the top five.
VALUATION GAP
Dealmakers say that while cheap debt and cash-rich corporate balance sheets have increased interest in dealmaking, one major hurdle has been disagreements between buyers and sellers over how much companies are worth.
"The gap between buyers and sellers is wider than I've ever seen," said Michael Carr, head of Americas M&A at Goldman Sachs.
"CEOs worry more than ever about how their deals and transactions are going to be perceived by existing shareholders, new shareholders and regulators," he added. "Shareholder reaction is one factor governing CEO confidence."
Paul Stefanick, co-head of global investment banking coverage and advisory at Deutsche Bank (>> Deutsche Bank AG), said companies might find it hard to agree on stock-for-stock deals because of market volatility, although there might be opportunities for cash transactions.
"Potential sellers have really not been too eager to sell, based on their optimistic view of the upside in the equity markets," Stefanick said. "What has happened over the course of the past week may cause some sellers to think twice about that."
TELECOMS, HEALTHCARE SHINE
Globally, telecoms and healthcare were bright spots for the
M&A market during the first half of the year.
Bolstered by large transactions such as Liberty Global Plc's (>> Liberty Global PLC) $25 billion acquisition of Virgin Media Inc, deal value for the telecom sector totalled $53.1 billion so far this year, up 34 percent from a year earlier.
Shareholders of Sprint Nextel Corp (>> Sprint Nextel Corporation) on Tuesday approved a $21.6 billion takeover offer from Japan's Softbank Corp (>> Softbank Corp). Sprint is also offering to take full control of Clearwire Corp (>> Clearwire Corporation).
Earlier this week, Vodafone Group Plc (>> Vodafone Group plc) said it would buy German's largest cable operator, Kabel Deutschland (>> Kabel Deutschland Holding AG), for 7.7 billion euros ($10 billion).
Healthcare mergers also picked up this year, with large deals including Thermo Fisher Scientific Inc's (>> Thermo Fisher Scientific Inc.) $13.6 billion acquisition of Life Technologies Corp (>> Life Technologies Corp.) and Valeant Pharmaceuticals International Inc's (>> Valeant Pharmaceuticals Intl Inc) $8.7 billion purchase of Bausch & Lomb Inc.
Healthcare deal volume rose 30 percent to $93.6 billion in the first half of the year.
"Putting aside some of the anxieties, if your industry is in consolidation, you cannot control timing and you cannot afford to sit back and wait," Goldman's Carr said.
Patrick Ramsey, co-head of Americas M&A at Bank of America Merrill Lynch, said that while uncertainty and market volatility caused CEOs and boards to take less risk, "equity markets have demonstrated a lot of support to announced deals, applauding smart, sensible M&A-driven growth."
ACTIVISM HEATS UP
Shareholder activists pressed further into corporate America, seeking changes at Apple Inc (>> Apple Inc.), Proctor & Gamble Co (>> The Procter & Gamble Company) and other big blue-chip companies while facilitating sales or breakups of smaller ones.
Industrial machinery maker Gardner Denver Inc (>> Gardner Denver, Inc.), which put itself up for sale under pressure from activist investor ValueAct, accepted a $3.7 billion offer from KKR & Co LP (>> KKR & Co. L.P.) in March. BMC Software sold to a group led by Bain Capital LLC and Golden Gate Capital, under pressure from Elliott Management.
Oil and gas company Hess Corp (>> Hess Corp.), meanwhile, is breaking up its business after a proxy fight with Elliot.
"Shareholder activism will continue to have an impact," Stefanick said.
Activists have also threatened to derail some deals, however. For example, investor Carl Icahn and Southeastern Asset Management are trying to block a buyout of computer company Dell Inc (>> Dell Inc.) by founder Michael Dell and private equity firm Silver Lake Partners.
Activist investor Starboard Value has battled pork processor Smithfield Foods Inc (>> Smithfield Foods, Inc.) in recent weeks, saying a $4.7 billion takeover bid from top Chinese meat producer Shuanghui International was too low and that the company should instead pursue a breakup.
Directors are keeping activists in mind as they make corporate decisions.
"Boards are quite focused on the idea that they need to be proactive stewards of the assets that they oversee and be very thoughtful about what should be retained, what is core and what is noncore," said Barclays' Parker. "Much of the heightened sensitivity can be attributed to the threat of activism."
(Reporting by Soyoung Kim and Olivia Oran in New York, additional reporting by Anjuli Davies in London, Editing by Michael Erman and Lisa Von Ahn)
By Soyoung Kim and Olivia Oran
