The signs are that corporate finance activity has picked up after months of unanswered prayers. But there is undoubtedly a legacy of caution left behind from the slump of the past few years. While the signs look promising on a national level, firms need extra confidence to broaden their horizons.
JP Morgan says concerns about the integrity of US financial reporting has continued to make European firms steer clear of US acquisitions. JP Morgan’s global mergers and acquisitions review has found M&A volumes involving a European acquirer had plunged to $2bn (£1.26bn) in the second quarter of this year.
The figure is staggering when compared with levels a few years ago. In 2000, volumes were in the range of $30bn to $100bn a quarter. The stagnation is starker when considering the recent weakness of the US dollar against the euro. But large companies are betting on more than currency movements when they take a plunge into uncharted waters. Firms need more confidence in the accounting information potential suitors provide. This speaks volumes about the importance of adopting IAS.
When there is growing optimism about the prospects for global recovery – with the US, Germany and even Japan showing signs of improvement – it seems a shame that accounting practices might be holding things up. Nationally, there is more confidence about raising cash from the equity market.
Announcements of big rights issues from Royal & SunAlliance and United Utilities have been mirrored by improving confidence further down the corporate finance spectrum. With signs that the private equity industry has reached the bottom of its cycle, the UK’s six listed private equity firms have outperformed the FTSE All Share index by up to 55% since last year. Private equity firm 3i has outperformed the index by 10%.
Against the grain of the established trend of streamlining and rationalisation at the Big Four, Deloitte & Touche has announced the creation of a team to focus on raising finance for private equity firms. Deloitte says it is convinced investment in private equity will recover sharply as the economy improves and the IPO market picks up. The firm points out that it is a good time to get into the market because investment banks have downscaled or got out altogether.