Mega-Deals Steal Spotlight, but Total Merger Count Lags

In the current corporate merger wave, the big are getting bigger, but a lot of smaller and mid-size companies aren’t necessarily on the menu anymore.

The number of U.S. merger deals has actually declined this year, even though mega-combinations such as the one announced Wednesday between Chase Manhattan Corp. and J.P. Morgan & Co. continue to drive the dollar amount of deals to record levels.

So far this year, 7,403 mergers involving U.S. companies have been announced, down from 7,891 at this time last year, according to Thomson Financial Securities Data.

But the dollar value of deals so far this year is $1.33 trillion compared with $1.11 trillion a year ago.

For many companies, merger mania has already peaked--though in many industries giant firms still appear to believe there’s logic in merging with another giant.

Indeed, many analysts expect to see ever-larger combinations between European and U.S. companies as corporations scramble to compete in the new global economy and become dominant players.

A continued recovery in the Japanese economy should bring more deals involving those firms and U.S. and European companies as well, analysts say.

“This is just the beginning of a new wave of merger and acquisition activity around the globe,” said Sung Won Sohn, an economist for Wells Fargo. “We haven’t seen nothing yet.”

Worldwide, there have been 25,293 deals announced this year worth $2.54 trillion, according to Thomson Financial. Both figures are up from a year ago at this time, when the number of announced deals totaled 23,290 and the dollar value was $2.11 trillion.

For full-year 1999, deals totaled $3.28 trillion worldwide.

In the United States, stock market volatility and rising interest rates put the brakes on merger activity in the second quarter, when deal activity fell 22% from the second quarter of 1999.

The stock market’s weakness hurt the value of many potential acquirers’ shares, depressing the currency used in all-stock deals.

Unexpected obstacles in recent months, including the U.S. government’s opposition to a proposed combination of WorldCom and Sprint, also might have had a chilling effect, analysts say.

Global deal activity also has slowed in the third quarter, in terms of number of deals: There have been 6,148 deals announced this quarter worldwide, worth $673 billion. That compares with 6,508 deals worth $621 billion in the same period last year.

In the U.S. alone, 1,787 deals have been announced this quarter, down from 2,229 in the same period last year. But boosted by mega-deals, the dollar value of deals this quarter is $462 billion, versus $260 billion a year ago.

In recent weeks deal activity overall has picked up, said Judith Cohen, editor of Mergers & Acquisitions Report in New York. “Still, this year really has been the year of activity in Europe,” she said.

Indeed, the Chase-J.P. Morgan deal was in part fueled by a desire to have a larger global presence, including in Europe.

That remains a driving force behind many deals. In the summer, Switzerland’s Credit Suisse made a deal to buy U.S. investment banker Donaldson, Lufkin & Jenrette, and Switzerland’s UBS banking giant agreed to buy U.S. brokerage PaineWebber Group.

The number of mergers in which foreign companies are buyers of U.S. companies continues to rise this year. Other deals have included Anglo-Dutch company Unilever’s plan to buy Bestfoods for $20.2 billion, and Telefonica of Spain’s planned $10.7-billion purchase of Lycos Inc.