PracticeConsultingHeadstart: Mergers – ‘The IPO market is dead’.

Headstart: Mergers - 'The IPO market is dead'.

Stock market slump is blamed for huge drop in M&A. Not surprisingly,

Corporate finance work has fallen off a cliff in the first three months of 2001. The latest figures from KPMG corporate finance on new listings revealed that IPO activity had almost entirely dried up.

The only major listing was Orange, the international mobile phone operator, which accounted for virtually all of the #3.99bn raised on the official list. Caffe Nero was the only other company to float, raising #9m.

Neil Austin, KPMG’s head of new issues, was driven to say: ‘The IPO market is dead. This is the lowest level of activity we have seen for over a decade and there is no evidence of a pick up.’

The dramatic collapse in activity was attributed to the significant fall in stock markets around the world.

The continuing uncertainty has led to a paralysis in the flow of equity issues. Austin warned: ‘No-one is yet able to call the bottom of the slump and restore the degree of comfort needed to encourage institutions to get their cheque books out.’

The picture was similar across Europe, with the number of IPOs at very low levels in the key markets of Germany, France and Italy.

During the first three months of this year, only 9bn euros was raised across Europe, a third of the amount raised at the same time in 2000.

At the other end of the scale the Centre for Management Buy-out Research showed that the value of MBO deals was holding up though the volume had dropped.

CMBOR, which is backed by Barclays Private Equity and Deloitte & Touche, recorded #5.7bn of deals in the first three months of 2001, the third largest figure ever. Deals included the #1.6bn Whitbread pubs buyout.

Tom Lamb of Barclays Private Equity said: ‘The fall in the stock market is producing a further surge of public to private activity as pricing becomes more attractive.’

Deloitte & Touche corporate finance partner Chris Ward was bullish about the prospects for the market: ‘Despite the stock market uncertainty and the reported fall in general M&A activity there have already been 10 #100m-plus private equity deals in 2001.

‘Against the backdrop of the market adjusting to new price levels we expect buyouts to dominate M&A activity for some time.’

The collapse in the mergers and acquisitions market has left many City investment banks in a depressed state.

According to KPMG, cross-border M&A activity dropped by a third in the last quarter of 2000 and this trend has accelerated in 2001.

John Griffith-Jones, head of corporate finance at KPMG, said: ‘This slowdown is partially attributed to the absence of mega deals but, more worryingly for the City as a whole, it is also due to a 25% drop in the volume of transactions in the UK.

But the malaise was not confined to the mega-deals sector.

KPMG said the value of mid-market deals, those under $1bn, had dropped by a ‘painful’ 41% from the same point last year.

This was seen as a worrying trend for the accountancy firms as the large investment banks continued their march into the mid-market arena – an area the Big Five firms in particular are keen to dominate.

If you want more information on the surveys mentioned in this article, go to www.nottingham.ac.uk/business/Cmbor/

More on KPMG can be found at www.kpmg.co.uk

Deloitte & Touche’s website is at www.deloitte.co.uk

News on Barclays Private Equity site can be found at www.barclays-private-equity.co.uk/.

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