M&A activity stronger than expected

According to data from Bloomberg, it was the busiest quarter in two years, with $562.6 billion of announced transactions in mergers and acquisitions.

Among the high profile M&A stories were BHP Billiton Ltd.’s hostile takeover attempt to purchase Potash Corp. of Saskatchewan Inc., Sanofi-Aventis SA also began its pursuit of Genzyme Corp. for $18.5 billion, and Intel Corp. announced its largest acquisition, a $7.7 billion takeover of software giant McAfee Inc.

“M&A activity in the third quarter was strong, even better than expected,” said Jeffrey Kaplan, global head of mergers and acquisitions at Bank of America Corp., which is advising Potash Corp. on its takeover defense. “I see real potential for a broad-based recovery with a lot of larger corporate deals.”

It’s a 59% increase in takeovers from the same period in 2009, according to Bloomberg.

Record-low borrowing costs likely played a key role. The number of transactions valued at more than $3 billion also doubled in the quarter, the data showed.

The third quarter is typically the slowest period of the year for M&A activity, but it boosted the total announced takeovers to $1.48 trillion in the first nine months of 2010.

“We are at the start of an up-cycle,” said Henrik Aslaksen Deutsche Bank AG’s global head of M&A in London. “Companies are flush with cash and have decided that it might be a good time to pick up quality assets they may have been eyeing for a while.”

Mergers and acquisitions will be the most robust in the financial-services, technology and natural resources industries, said Peter Weinberg, partner and co-founder of Perella Weinberg Partners in New York. Improved confidence at the start of the year has been the impetus for activity now because of the typical six- to nine-month lag time to arrange a deal.

“People had significant confidence in the equity markets, the financing markets or their own strategic aspirations,” Weinberg told Bloomberg News.