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M&A Activity Seen Muted in 2012 as IPOs Stall

Continuing uncertainty and volatility in the global financial markets is keeping the IPO and M&A markets on a leash, according to new reports from Ernst & Young and UBS.

“Volatility, sovereign debt issues, and the downgrading of US debt has everyone uncertain,” Maria Pinelli, Global IPO Leader, Ernst & Young, told CNBC Thursday.

“We need security. We need to know the euro zone crisis will be resolved, we need to know the markets will reward risk and then companies will come out.”

The number of companies coming to market in the first 11 months of 2011 was 20 percent lower than the full year for 2010, with little prospect of a sudden IPO boom in December to bring numbers back up, according to Ernst & Young. The amount of capital raised in the 11 months was 45 percent smaller than in 2010.

After a good first half, with a bumper London listing by commodities trader Glencore, IPO volume sunk in the second half of 2011 as companies such as GlassHouse pulled planned listings.

Pinelli believes there should be a spike in IPOs once markets stabilize as companies who have canceled their listings go to the market.

“We’re absolutely full in the IPO pipeline but we just need some stability in the market,” she said.

Global M&A is set to remain subdued in 2012 despite valuations coming down in 2011, a survey from UBS suggests.

While close to 1 in 6 companies, including 1 in 3 large caps, are planning significant deals in 2012, others are more firmly resolved to stay away from M&A next year, according to the analysts who conducted the survey.

"Given that the market is trading at two standard deviations from the long run average in Europe, we thought this would be a time for corporates to come in,” Daniel Stillit, analyst at UBS, told CNBC Thursday.

“What they’re telling us is that markets are moderately cheaper but for 75 percent that still had no impact on their M&A plans for next year.”

He added that there is still a “very big disconnect” between sellers and buyers in the M&A market, with sellers keeping their valuations high.

“What corporates are saying is they’re in no hurry to return cash. What they want to spend their money on is, number one, capex for organic growth,” he said.

“I think we’re more in restructuring mode for the next year, with a few deals – a 2004 type year in M&A terms.”

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