Waiting for the upturn

Investment banks are continuing to lay off staff as large-scale merger and acquisition work disappears but corporate finance arms of accountancy firms predict growth in the private equity market. According to figures from KPMG Corporate Finance, larger management buyouts towards the end of last year fell to their lowest quarterly level since 1995.

But experts believe this will soon change. ‘The last six months will go down as a low point,’ said Paul Zimmerman, partner at Deloitte & Touche Corporate Finance. ‘But the nervousness has softened with 2002,’ he added.

Deloittes, along with other firms such as KPMG and PricewaterhouseCoopers, said its deal ‘pipeline’ – the number of potential deals it has on its books – was good but the time taken to complete the deals was increasing.

KPMG’s Graeme Griffiths echoed this view, saying: ‘Deals are taking longer to complete, and some are falling over at the last moment. A meaningful recovery is not going to happen until the second half of the year.’

Others were more optimistic – Cavendish’s Howard Leigh believes deals would come through sooner. ‘The market is a lot better than we thought it would be two months ago, but it’s a brave man that makes predictions for 2002.’

He also believes the investment banks that had laid off staff would begin rehiring again ‘in a panic’.

Experts agreed the upsurge of activity would be in the private equity market, rather than in large-scale M&A work or flotations. ‘The IPO is dead. It is a hard way to raise capital at the moment,’ said BDO Stoy Hayward’s corporate finance partner Peter Hemington. ‘But there is a lot of private equity money around.’

PwC’s UK head of corporate finance Graeme Pike said vendor expectations over the price that could be achieved for a company were now more realistic, though there had been a huge amount of uncertainty towards the end of last year. ‘Now is a good time to buy.’

Pike had also seen an increase in the number of ‘public to private’ deals, where companies left the stock markets through a management buyouts or trade sales, with a significant number of sales going to venture capital houses.

This was backed up by research from the Centre for Management Buy Out Research, which showed venture capitalists continued to take private undervalued companies – a reliable source of work for the accountancy firms.

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