FORTUNE -- For two years now we've been going through the same M&A bait and switch: High expectations borne of easy debt and giant corporate cash accounts, and meager deal volume caused by risk-averse CEOs and boards.
So perhaps it's time to stop caring so much about the external factors and consider that the symptom is actually the underlying condition. Or, put another way, what if the M&A market isn't really showing "soft" volume quarter after quarter? What if it has, instead, experienced a fundamental reset?
That's the argument being put forth by Ernst & Young, in a new paper published this morning. And it's not unprecedented.
"If you go back over the past 100 years, which really is the modern age of M&A, there have been a number of major, sustained dips," explains Richard Jeanneret, E&Y's vice chair for transaction advisory services. He continues:
"In the early 1900s there was a wave of horizontal merger activity and then a big dip for 15 or 20 years until the early 1920s when vertical mergers became the talk of the day. Then the Great Depression obviously killed M&A and we went 30 to 35 years before we got strong merger activity again in the 1960s when conglomerates became in fashion, and we were at a huge level for nearly 15 years until we got a big dip in the late 1970s due to financial and oil crises. Then it began to heat up again in the mid-1980s with the advent of hostile takeovers and corporate raiders, dipped again in the early 1990s, before we got a fifth wave of M&A sparked by cross-border activity. The recession killed that off until we got that six years of robust activity driven by private equity and shareholder activism before the financial crisis. Now we're on our fifth year of a substantive hiatus, and the longer this goes on it's harder to ignore – primarily because we've had such a huge and unprecedented divergence of M&A activity and stock market prices."
Jeanneret is basically asking who you're going to believe: M&A prognosticators or your lying eyes?
RELATED: M&A volume hits 3-year low
It's important to note that Jeanneret is not ignoring the power of outside influence. In fact, he thinks the reset has been caused, in large part, by C-suite worries the tepid economic recover (at least in the U.S.) has been driven more by Fed intervention than by underlying fundamentals.
But he also sees a broader move away from M&A as a growth strategy, in part evidenced by a recent wave of divestitures.
That's where the fundamental reset really applies, and it means that we may need new benchmarks -- literally and figuratively -- for judging M&A activity over the next several years.
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Does the M&A market need a stock market slowdown?
FORTUNE -- To get a sense of merger and acquisition volume, one can usually look to public equity performance. And vice versa. Just take a look at the correlation since 1995:
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Tech IPOs will return. Just have some patience.
FORTUNE -- In baseball, people get all excited about how a team begins the year. Win 15 of your first 20, and you're a shoo-in for the World Series. Lose your first few, and someone better get fired. The tech IPO market seems pretty similar.
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The schizophrenia continues: We aren't going public now, but we will soon.
FORTUNE -- It's probably not a stunning revelation that an increase in IPO filings historically portends an improving economy. Late 2009 saw a strong uptick, for instance, which was followed by a great bull market in 2010, while the stagflation of the mid 1970s meant barely any IPOs saw daylight, especially during the dark days between 1974 and 1976.
So MOREBrendan Coffey, Contributor - Oct 19, 2011 3:23 PM ET
Can an embattled accounting firm turn the New York attorney general's greatest strength against him?
Ernst & Young may try to do just that as it braces against a civil fraud suit claiming it helped conceal Lehman Brothers' accounting games in the years before its 2008 collapse.
Ernst promised in a statement this week to defend itself vigorously in the complaint, which seeks at least $150 million in damages. The firm said it MOREColin Barr - Dec 23, 2010 6:42 AM ET
New York sued the giant accounting firm Ernst & Young Tuesday, saying it helped Lehman Brothers deceive investors about its true health for seven years.
The complaint, filed in state Supreme Court, seeks the repayment of at least $150 million in fees the audit firm collected between 2001, when Lehman's aggressive accounting began, and 2008, when the venerable bank collapsed, precipitating a global bank run.
"Our lawsuit seeks to recover the fees collected by MOREColin Barr - Dec 21, 2010 11:31 AM ET
Don't look for indictments in Andrew Cuomo's case against the accounting firm. That could kill the business, and no one wants that.
If you're going to screw up, make sure you're working at a company that regulators aren't going to allow to fail. That's the lesson not only for big financial companies, but for the Final Four big national accounting firms as well.
Take Ernst & Young, which is a target of MOREAllan Sloan, senior editor-at-large - Dec 21, 2010 11:23 AM ET
"Auditors who can't say no" sounds like a support group in the making. But one embattled audit firm isn't getting a terribly sympathetic hearing.
So says a quickie survey conducted Monday by the Argyle Executive Forum. The electronic poll of 498 members finds that nearly half of respondents -- 48% -- believe New York should move forward on civil fraud charges against Ernst & Young over its role in the MOREColin Barr - Dec 21, 2010 6:26 AM ET
One of the toothless accounting watchdogs that did so much to bring us the financial crisis is about to get an overdue scolding.
New York's attorney general is pursuing a civil suit against Ernst & Young, the Big 4 accounting firm that signed off on Lehman Brothers' financial reports in the years leading up to the investment bank's panic-inducing September 2008 collapse.
The case comes nine months after the bankruptcy examiner in the Lehman MOREColin Barr - Dec 20, 2010 11:47 AM ET
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