Seven of the year's 10 biggest deals were announced before August, when European markets fell the most since October 2008 amid a global stock rout and Standard & Poor's cut the U.S. credit rating. Goldman Sachs is the top adviser on global takeovers for 2011, with $537 billion of deals this year, followed by JPMorgan Chase & Co. and Morgan Stanley, Bloomberg data show. This year's growth in M&A volume compares with a 24 percent jump in 2010.

Europe's financial crisis will stifle lending, push the region into recession and weigh on the U.S. economy through early 2012, Jan Hatzius, Goldman Sachs's chief economist, said on a Nov. 30 conference call. The euro zone's unemployment rose to 10.3 percent in October, the highest since the currency began in 1999.

As the European crisis deepened, “dealmakers entered a wait-and-see mode, and that's where we are now,” said Paul Parker, global head of M&A at Barclays Plc in New York. “Offsetting forces such as companies' cash piles and low valuations should drive the recovery of M&A activity in the second half of the year.”

The MSCI World Index of about 1,600 companies trades for 12.6 times reported earnings, showing equities in developed economies are cheaper than they've been more than 95 percent of the time since 1995, according to data compiled by Bloomberg. Those companies are also sitting on $5.3 trillion in cash, the data show.

Antitrust Hurdles

Companies that did tap funds this year may not be able to complete their purchases as regulatory scrutiny threatens to derail more takeovers. Express Scripts's offer for Medco, which would create the largest U.S. manager of pharmacy benefits for employers, insurers and union health plans, has prompted state inquiries over whether the combination would command too much market power.

AT&T abandoned efforts to buy T-Mobile USA from Deutsche Telekom AG this month after the U.S. Justice Department sued the companies in August, saying a combination would substantially reduce competition. Companies contemplating similar deals may hold off until the next presidential election in the hope that a Republican White House would make it easier to win approval for big transactions, said Jeffrey Silva, a Washington-based policy analyst with Medley Global Advisors.

Deutsche Boerse AG and NYSE Euronext this week delayed the deadline for completing their merger until March 31 as the exchange operators try to persuade European Union regulators to approve the deal. While the U.S. cleared the combination, the EU has told the companies that concessions they offered to allay antitrust concerns don't go far enough, two people familiar with the talks said this month.

Dealmaking involving European companies rose 2.2 percent this year, bolstered by the first half. For the fourth quarter, announced volume sank 14 percent from the previous three months to $161.4 billion. Valuations have also dropped, making the MSCI Europe Index even cheaper than the MSCI World Index at 10.8 times earnings. That may create opportunities for buyers from nations such as China.

“Chinese companies have been very successful at buying natural resources in emerging markets, and they are now very supportive of buying industrial assets in Europe,” said Thierry d'Argent, global head of M&A at Societe Generale SA in Paris.

Asia Pacific

French dairy-product maker Yoplait and the aviation unit of Royal Bank of Scotland Group Plc both attracted interest from Chinese bidders this year, according to people with knowledge of those negotiations.

The value of acquisitions involving Asia Pacific companies rose 3.8 percent to $698.4 billion this year, according to Bloomberg data. The biggest deal was Nippon Steel Corp.'s proposed takeover of Sumitomo Metal Industries for about $22 billion, including debt. That was followed by BHP Billiton Ltd.'s purchase of Houston-based oil and gas explorer Petrohawk Energy Corp.

Foreign buyers also spent more on Asia Pacific in 2011 than any year since 2007, according to the data. The largest overseas bid was SABMiller Plc's $10 billion takeover of Australian beer maker Fosters Group Ltd., the data show. Among Asian countries, Japan overtook China as the biggest acquirer of foreign assets for the first time since 2008 after the March 11 earthquake spurred companies to retrench.

Japan's Takeovers

“Japanese industries had been shrinking, and companies needed growth drivers,” said Kenji Fujita, head of M&A advisory at Mitsubishi UFJ Morgan Stanley Securities Co., the Tokyo-based investment banking venture of Morgan Stanley and Mitsubishi UFJ Financial Group Inc. “The earthquake raised the urgency for that.”

Japan's Kirin Holdings Co. bought Brazilian beermaker Schincariol Participacoes e Representacoes, and China Petrochemical Corp., or Sinopec, agreed to purchase a 30 percent stake in Galp Energia SGPS SA's Brazilian unit.

Still, after a record-high volume of $161 billion in 2010, the volume of announced deals involving Brazilian companies tumbled to $98.3 billion this year as the Brazilian real strengthened while the country's economy slowed.

“I'm glad to leave 2011 behind,” said Flavio Tavares Valadao, head of corporate finance at Banco Santander do Brasil SA, based in Sao Paulo. “Deals are difficult to make and companies are worried for the future.”

Brazilian Deals

Santander worked on Telefonica SA's merger of its Brazilian fixed line unit, Telecomunicacoes de Sao Paulo SA's with its mobile unit, Vivo Participacoes SA. The Spanish bank also advised Spain's Iberdrola SA on the acquisition of Brazil's Elektro Eletricidade & Servicos SA for 1.77 billion euros ($2.3 billion).

Dealmakers predict that technology, industrials, natural resources and health care will continue to be the sectors most actively consolidating, especially if European policy makers can prevent financial turmoil from spreading to more countries.

“Companies need to have more confidence that we aren't going to have a break-up of the euro,” said Mark Shafir, global head of M&A at Citigroup Inc. “If you got that cleared up, then the first half of next year could be a lot better than the second half of 2011 has been.”

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