M & A activity declines further in early 1990.

M&A ACTIVITY DECLINES FURTHER IN EARLY 1990

CPAs associated with clients or companies involved in merger or acquisition negotiations should advise caution in all aspects of the deal because the M&A market is in a pronounced decline.

The collapse of the junk bond market has made it increasingly difficult for buyers to raise capital. As a result, many "done deals" have fallen apart and others have been consummated at significantly lower prices only after renegotiations.

To understand the extent of the merger activity decrease, consider the following examples from a report on M&A activity in the first three months of 1990, compiled by the Securities Data Company.

* Overall domestic merger activity declined 52% from the first quarter of 1989, when 398 deals of $10 million or more (totaling $102.6 billion) were announced. This year, 235 transactions (valued at $49.4 billion) were announced, a decline of 29% from the already depressed levels of the fourth quarter of 1989.

* Only 16 leveraged buyouts valued at $10 million or more were completed in the first quarter of 1990, a 71% drop from the 56 completed in the same period last year. Moreover, those 16 LBOs were valued at $6.7 billion, or 33% of the $19.9 billion value of LBOs completed in the first quarter of 1989.

* Merchant banking deals, in which major investment banks participate directly in the transaction, have become a rarity. Only two such deals, valued at $883 million, were consummated in the first quarter of 1990. This compares with 31 deals valued at $8.5 billion in the year-earlier period.

* Even acquisition of U.S. target companies by foreign buyers has slowed. In the first quarter of 1990, there were 963 such acquisitions, valued at $50.3 billion. This represents 52% of the $96.5 billion aggregate value of 1,132 deals announced in the first three months of 1989.