DealZone

Bond sales are at a record, equity markets are at year-highs, private equity firms are sitting on huge cash piles -- Blackstone alone has $29 billion -- and banks are lending to each other again.

The ingredients should all be there for a resurgence of cash-driven mergers and acquisitions. But instead, the market is in hibernation.

So far the value of all M&A deals completed this year totals $990 billion. You have to go back to 2003 -- when the total for the year was $1.23 trillion -- to find a figure this low, according to Thomson Reuters data.

Of this, some $364 billion -- just 37 percent -- were cash deals, marking a dramatic shift in the mix of recent years when cash has dominated.

The main spanner in the works is the still dire state of banks' balance sheets and the crippled syndicated loan market. This has kept a tight lid on cash bids of any size, with the mega merger or takeover a distant memory.

Much has been made recently of the drop in activity in European loan market activity and the corresponding boom in bonds and equities, which was recently highlighted by Reuters columnist Alexander Smith in this article. But while the loan market is undoubtedly down, it is far from out. The flow of bond and equity issuance is feeding cash back into the loan market, and liquidity has clearly improved in the last month, allowing a number of deals to close oversubscribed.

I wrote this story summarising the stronger tone in the market and highlighting the relationship between the loan market and M&A financing which could quickly boost loan volume when M&A activity picks up.

A few nuggets from the weekly Thomson Reuters “investment banking scorecard”:

U.S. investment-grade debt is enjoying a busy May (and the month’s not even over yet). Offerings total $70.9 billion from 61 issues so far this month, the largest monthly volume since last May’s record $143.3 billion.

Bolstered by energy and power companies, Indian syndicated lending volume totals $14.1 billion year-to-date. That makes it one of the few nations to experience a year-over-year volume increase, up 9% over 2008.