A fall in the number of so-called “mega deals” during the first three months of 2010 helped to trigger a notable drop in the overall value and volume of mergers and acquisitions, according to a new survey.

In the first quarter of 2010, 524 mergers and acquisitions worth about £13.6 billion were recorded in the UK, according to business advisers, Grant Thornton.

That represents a fall of 14% in the number of deals and a 22% drop in value compared to the fourth quarter of 2009, when 610 M&A transactions worth £17.5 billion were announced.

Year-on-year, the latest results are 6% higher in terms of the number of deals but 68% lower in terms of total value – in the first quarter of 2009 there were 496 transactions worth £43 billion.

Geoff Davies, the head of corporate finance at Grant Thornton, said: “The drop in the total M&A value is partly due to there being fewer mega deals than last year. At the same time, there is a rebound in activity in mid-market M&A. We have not worked on so many M&A deals since the second quarter of 2008.”

In the latest quarter there was also a drop in the number of private equity-backed buy-outs, which topped 42 deals with a total value of almost £2.4 billion. This was down by 21% on the number of deals in the fourth quarter of 2009, when 53 transactions with a total value of more than £2.9 billion were backed by financial sponsors.

Year-on-year, the number of private equity transactions increased by almost one third, as financial sponsors only backed 32 deals with a total value of £379 million in the first quarter of 2009.

Davies added: “There has been robust competition in our sales processes among private equity and trade bidders, as well as debt providers. The gearing model of 50% debt to equity is where the market is today and banks are willing to support that level of gearing for quality targets.”

Despite the devaluation of Sterling, Grant Thornton says the number of foreign acquisitions of UK targets has not picked up significantly. In the first quarter there were 162 foreign acquisitions of UK targets with a total value of about £6 billion. This compares positively to the first quarter of 2009, when…

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