The worldwide analysis reveals that the number of closed deals declined 25% 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 % reduction.
Asia suffered the greatest decline in completed deal value (26% down) and volume (34% down) with Japan only closing around half the number of deals completed last year. Total value and numbers of M&A transactions were both off by 22% in North America but in Europe values were more robust at 8% down on last year. Meanwhile, Australasia saw total deal values rise by 6% on last year.
Antony Cohen, KPMG's Australian Head of Mergers and Acquisitions (M&A) said, "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.
"In the last year KPMG advised on a number of the largest Australian cross-border transactions including acting as the independent expert on the demerger of CSR and Rinker, and as adviser to HSBC on its acquisition of AMP's New Zealand mortgage portfolio," said Cohen.
Whilst it is too early to look for improvements in the completed deal flow globally, the announced pipeline shows that October 2003 recorded the highest monthly value of announced deal activity globally 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 %), the value of worldwide announced activity is only 2 % off last year's total. In North America total announced value for 2003 rose by 5 % on last year. However, it is Australasia that clearly bucks the trend, increasing by more than 50 % in the value of announced activity this year.
"Turning the M&A tide internationally is going to be a slow affair. Following the flurry of announced activity in the US this Autumn, we can expect the mood to spread to other major world markets," said Cohen.
This year the hostile takeover made a comeback as the value of unsolicited announced activity was three times that of last year (US$48 billion v US$16 billion), underpinned by a few large, 'unfriendly' approaches. These included ArvinMeritor's bid for Dana Corp for US$2.2 billion, Alcan's US$4.6 billion offer for Pechiney and the US$7.2 billion approach by Oracle for PeopleSoft.
"Unsolicited bid activity is a further sign of confidence in the market as acquisitive companies begin to put pressure on reluctant Boards. In contrast to activity in the 1980's, hostile activity has transformed from the aggressive to the purposeful. The rise of corporate governance and increased need for transparency has placed a sharper focus on management teams. They can no longer hide behind golden parachutes and poison pill techniques as institutional investors exercise greater power.
"In Australia, these techniques have never been as common or effective as in other markets," said Cohen.
Financial sponsors continued to play an important role in deal activity this year, particularly in Western Europe where private equity now represents 13% of activity by value (3% in 2000) and 11 % by volume (6% in 2000). Globally the proportion of private equity backed deals is also rising and now accounts for 10 % of all deals in value (2% in 2000) and 6% in volume (3% 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? The operational synergies available to trade purchasers are likely to put pressure on the private equity buyer as the economic climate improves," said Cohen.
But how long until we see some tangible evidence in any M&A recovery offshore? 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. The only significant change recorded was a reduction in the time taken this year to close a deal above US$1 billion from 166 days last year to 129 in 2003.
"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 and global markets enjoy the same bullish and positive sentiment that exists in Australia," Cohen concluded.
