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Global M&A activity is levelling out

June 22 2004

Global M&A activity is levelling out…but no recovery yet

Activity stalls after buoyant start to 2004: worldwide bid numbers down but values hold up 8,073 deals globally, worth US$557 billion close this half

-Asia Pacific region is first to show growth
-Sizeable pending tray will dictate year-end result

As we approach the half-year mark, KPMG Corporate Finance’s regular analysis, based on data supplied by Dealogic, shows a levelling out to the slide in global M&A activity witnessed since 2000.

The worldwide analysis reveals that the value of global completed transactions held up with a combined US$557 billion worth of deal activity for 2004 to date, compared to US$553 billion of deals closed during the first half of 2003. However, the number of completed deals was down 10 percent from 8,942 in the first half of 2003 to 8,073 so far this year. The value and volume of activity for this half year is also below that for the second half of 2003.

Russell Florence, partner in charge of KPMG Corporate Finance, says: “These figures are below expectations given the optimism that surrounded the first quarter. At the start of the year a more stable economic landscape and a rebound in the equity markets held the promise of increased M&A activity, but this has yet to materialize. While it is encouraging to see a flattening out in the value of completed activity, the drop in the overall number of deals is a telling sign that recovery is still a way off.”

So, with the global economy strengthening, why have we not seen a corresponding growth in M&A? Mr Florence said: “Just when the market looked stable in January this year other events began to de-stabilize it. M&A activity will now be further hampered by the prospect of inflation on the back of rising oil prices and an increase in the cost of capital following a turn in the US interest rate cycle. In addition, large exchange rate moves have caused difficulties in assessing the true value of transactions. This all adds layers of uncertainty to a fragile market.”

A look behind the global figures this half, reveals a differing picture across the major time zones. The Europe, Middle East and Africa (EMEA) region is still showing a steep downturn with completed deal numbers dropping by 21 percent on the first half of 2003. Conversely, deal volumes in the Americas fell just one percent and Asia Pacific (ASPAC) is up by seven percent by closed bids compared to the first half of 2003.

Russell Florence says there is evidence to suggest that ASPAC is coming out of the downturn a neck ahead of the Americas. “The upswing in Japan is from a low base of activity but reflects a growing trend for investment in Asia. Arguably the best barometer of appetite is signalled by the traditional M&A powerhouses of the US and UK. Improvements in activity here will have the greatest impact on global figures but while US activity is holding level, the UK has taken a large dent to deal numbers compared with the broader Western European theatre.

“The activity in New Zealand and Australia is not as encouraging as in the rest of the ASPAC region. The completed deals in New Zealand were down by 44% by number and 54% by value compared with the first half of 2003. By comparison Australia’s activity was flat in deal numbers and down 24% by value.”

On the outlook for the rest of 2004, Russell Florence says, “we are poised to turn a corner in M&A during 2004, but this will largely depend on market, geo-political and economic factors – many of which currently threaten to hold back M&A growth.

“The market has experienced a series of shocks over the last two years and so the mood is subdued. The harsh spotlight of the regulator and the focus on corporate governance has also put the brakes on deal-making - certainly of the kind and levels we saw in the last boom. So, as we have witnessed in previous downturns, everything now hinges on confidence outweighing uncertainty.”


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