To the casual observer it might look as though M&A; activity globally during the first half of 2005 was less than inspiring. Activity did increase when compared with the same period last year, but growth was modest. A closer look, however, reveals hotspots such as the UK market, which grew 40%, and important developments such as Western Europe overtaking the US by deal value and volume.
Consultancy KPMGs corporate finance division estimates that globally at the end of the first half $771 billion of deals and 12,400 deal closures will have been completed a 14% increase on both the value and the volume of deals closed in the first half of 2004, based on figures from investment banking information provider Dealogic.
There is a feeling that hope is coming back to the market, says Simon Collins, CEO of KPMGs UK corporate finance team. In the UK and Western Europe there is a good story unfolding, and, of course, activity in Asia-Pacific is rampant. On the downside, activity in the US market appears to be dwindling. Collins notes that one global trend is the increase in the number of large deals. The market is now largely driven by a handful of mega-deals, he says.
The continued strength of the debt and equity capital marketsdespite the spate of volatility resulting from the downgrade of Ford and GM in Marchhas played a major role in the growth of M&A; activity. The volatility that we have seen in recent months has only affected fringe players, explains Collins. Private equity houses still have access to huge sums for investment, and for corporates the bank lending market is as attractive as it has ever been. Banks are extremely liquid and have to invest that money somewhere.
At first glance some of the areas of greatest growth seem counterintuitive: UK real estate is a sector many consider overvalued while Western Europe and Japan are widely perceived to be economically stagnant. But, as Collins explains, M&A; is not necessarily driven by boom times. The role of M&A; in restructuring is just as important as it is during buoyant economic conditions, he says. CEOs dont necessarily need strong economic conditions or even strong financial markets to do deals, although it helps. What they really need is confidence, and what we are seeing now are cautious forays into M&A; and growing confidence.