Dealmakers shrug off Q1 slump

Dealmakers at accounting firms are confident that cross-border deal activity
will pick up after government statistics suggested that the market was cooling
off after last year’s record levels.

The Office for National Statistics found that in the first quarter of 2006,
deal volumes for cross-border transactions involving UK companies were down on
Q4 levels, while values were only up as a result of Telefonica’s £17bn purchase
of O2.

Volumes for UK company acquisitions abroad fell from 91 to 74, with values
for these deals more than halving from £13.8bn in the last quarter of 2005, to
£6.8bn in Q1 2006.

Deal volumes for foreign company acquisitions of UK groups were also down,
falling from 59 deals to 34. Values were rescued by the O2 deal, which saw a
rise from £15.5bn to £19.4bn.

David Brooks, head of M&A at Grant Thornton, said the quiet start to the
year was nothing more than a ‘pause for breath’ after £50.3bn was invested in UK
companies by foreign groups last year.

‘In our opinion, the cross border M&A market is still buzzing, leading to
expectations that the rest of 2006 will quickly pick up where 2005 left off,’
Brooks said.

Other commentators, however, are not as optimistic on the 2006 prospects.
‘Most private equity sponsors fully accept that it is just a matter of time
before the debt market starts to turn off the liquidity tap,’ credit rating
agency Standard & Poor’s said in a research report.

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