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KPMG Corporate Finance’s position on M&A climate

The overall picture: KPMG Corporate Finance’s position on the M&A climate –

2003: M&A slide continues but hope is on the horizon

Closing figures reveal further decline in completed global volumes The return of hostile bids and improved announced pipeline As we approach the year-end, KPMG Corporate Finance’s regular analysis, based on data supplied by Dealogic, shows that despite renewed optimism, the value and volume of global transactions has fallen again this year.

The worldwide analysis reveals that the number of closed deals declined 25 percent on 2002 from 20,954 to 15,662 so far this year. In value terms the fall was less severe with global completed transactions totaling US$1,009 billion for 2003 to date, compared to the US$1,191 billion of deals closed during 2002 – a 15 percent reduction.

Asia suffered the greatest decline in completed deal value (26 percent down) and volume (34 percent down) with Japan only closing around half the number of deals completed last year. Total value and numbers were both off by 22 percent in North America but in Europe values were more robust at 8 percent down on last year. Meanwhile, Australasia saw total deal values rise by 6 percent on last year.

Russell Florence, Partner in charge of KPMG Corporate Finance comments: “at the outset everyone knew 2003 was going to be a difficult year. However, a lengthy war in Iraq and the outbreak of SARS held back the long-awaited end to the bear market. As we stand now, the first signs of recovery and greater optimism should reap rewards in 2004.”

A more forward looking analysis supports this theory. While it is too early to look for improvements in the completed deal flow, the announced pipeline shows that October 2003 recorded the highest monthly value of global announced deal activity since October 2000 and the highest number of deals in any month this year. During the year overall, while global volumes are still down (23 percent) the value of worldwide announced activity is only 2 percent off last year’s total. In North America total announced value for 2003 rose by 5 percent on last year. However it is Australasia that clearly bucks the trend, increasing more than 50% in the value of announced activity this year.

Financial sponsors continued to play an important role in deal activity this year, particularly in Western Europe where private equity now represents 13 percent of activity by value (3 percent in 2000) and 11 percent by volume (6 percent in 2000). Globally the proportion of private equity backed deals is also rising and now accounts for 10 percent of all deals in value (2 percent in 2000) and 6 percent in volume (3 percent in 2000). Across the world, financial sponsors closed 928 deals worth a total of US$101 billion.

“The private equity community has taken advantage of a weakened economy but as CEO confidence increases how long can they steal a march over the trade buyer?” questions Mr Florence. “The operational synergies available to trade purchasers are likely to put pressure on the private equity buyer as the economic climate improves.”

“But how long until we see some tangible evidence in any M&A recovery? A look at the time period from announcement to completion shows that on average it took 110 days for a public deal to complete this year. Interestingly there was no evidence of so called ‘deal stretch’ with average yearly completion times changing little since 2000 globally.”

Mr Florence says, “a rising trend across the world’s major stock market indices over the last three quarters provides a sound foundation for corporate valuations and businesses will start to feel able to do deals again. Any improvement in M&A will take time to translate into hard results. Whilst public deals are not taking any longer to close, we first need to see a thickening of the announced pipeline if there is to be any bottoming out to this downturn in 2004.”

KPMG Corporate Finance’s M&A survey, based on figures supplied by Dealogic, is a comprehensive analysis of data on domestic and cross-border mergers, acquisitions and strategic investments completed during the calendar year. The figures in this press release are based on data between January 1, 1995 and December, 2, 2003 and are shown in US dollars. If you wish to use any of the graphs provided in this release please can you quote Dealogic 2003 as the source of the data.

KPMG Corporate Finance provides a range of independent, investment banking services internationally and comprises more than 1,600 investment banking advisory professionals operating in 51 countries. KPMG Corporate Finance provides strategic advisory, evaluation, financing and deal management services covering: acquisitions and disposals; mergers and takeovers; specialist valuations and fairness opinions; debt advisory; structured and leveraged financing; private equity strategies; initial and secondary public offerings; joint ventures and transaction alliances. In 2002, KPMG Corporate Finance handled more than 600 key mandates worth over US$50 billion worldwide, and secured a leading position in the financial adviser league tables. KPMG Corporate Finance is a division of KPMG which operates from offices in Auckland, Wellington, Christchurch, Tauranga and Hamilton.

KPMG is the global network of professional services firms whose aim is to turn understanding of information, industries, and business trends into value. With nearly 100,000 people worldwide, KPMG member firms provide audit and risk advisory, tax and legal, and financial advisory services from more than 750 cities in 150 countries.

Dealogic is a provider of Global Investment Banking analysis and systems. With offices throughout the world, Dealogic offers comprehensive coverage of global capital markets, credit markets, and M&A activity.

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