A steep decline in private equity transactions and the slowing pace of deals in the United States caused global mergers and acquisition activity to drop 30% in the first half of 2008, to $1.87 trillion, its lowest level in three years, according to data compiled by Dealogic.

In the first six months of this year, financial sponsor buyouts, which include private equity acquisitions, plummeted 77% from the same period last year, to $124 billion. Private equity deals accounted for just 7% of the M&A market in the first half of the year, down from 20% in the first half of 2007. In fact, private equity’s share of total deal activity was the lowest since 2001, Dealogic found.

Where only 7% of M&A deal volume was Private Equity sponsored, 88% of deals were from strategic transactions, up from 74% in the first half of 2007.

Strategic deals have grown as a percentage of total M&A activity in each of the past four quarters, mirroring the sharp fall in private equity transactions. Nonetheless, the total value of strategic deals so far this year was down 18% from the record $1.99 trillion during the same period last year.

M&A activity was also curtailed as a result of the turmoil in the credit markets, which has made it harder to obtain loans for leveraged buyouts.

On the plus side, data from Dealogic shows that July 2008 was the fifth straight month of growth in U.S. mergers and acquisitions activity, and the highest total since a year ago. This growth is partly due to an increase in foreign investors acquiring U.S. companies.

Despite woes in the buyout market, private equity fund-raising continues to hold its ground. In the first six months of 2008, U.S. private equity firms raised $132.7 billion across 185 funds, 3% shy of the $137.2 billion raised by 199 funds during the first half of 2007, according to industry newsletter Dow Jones Private Equity Analyst.

The full-year fund-raising record is $313 billion, which was set in 2007.

Leveraged buyout (LBO) fund-raising declined 20% compared to the same period last year as firms raised only $85.5 billion across 75 funds in the first half of 2008, down from $107.6 billion raised in 91 funds.

Source: Dealogic, Dow Jones Private Equity