Corporate Finance – Paul Zimmerman

There are many statistics that demonstrate 2001 is a difficult year for mergers and acquisitions. A reduction in global M&A activity of 50-70% does not make good reading. However, there are significant markets within M&A that are clearly bucking the trend. These include the buyout market in general and certain sectors of M&A activity, particularly healthcare, property and financial services.

The private equity/buy-out market has demonstrated genuine resilience – total deal volumes are broadly on line with last year as is deal value.

The final quarter for 2001 is unlikely to maintain this trend as already a number of larger deals (i.e. over #100m) have inevitably stalled. But in our current day-to-day experience, mid market deals i.e. #10m-#100m have held up. Private equity houses are acting sensibly but with added caution especially when assessing profit and cash flow forecasts and when assessing their potential exits.

Across industry sectors the M&A story is very mixed. There is still high demand for industries in the ‘old economy’ sector, with strong asset backing, cash flows and which operate in markets with decent growth potential.

And even in the new economy sector there are deals about. For example, Deloitte & Touche acted for on its #45m disposal of Loot to the Daily Mail and General Trust.

In addition, there are many quality private/family owned businesses which have held off from selling until April 2002 that are now actively preparing themselves for disposal. Our role as ever is to ensure that these businesses come to the market at the right time, with the right preparation and to make sure that price expectations are based on sound, current valuations.

The interplay between gross prices and post tax prices is an interesting dynamic that should help fuel the M&A market.

So while the macro economic signals are mixed, at micro level M&A activity continues and while any corporate financier worth their salt will want to remain realistic, most always have a healthy dose of optimism based on a real belief that governments from the US and Europe are acting in a co-ordinated way to counteract the global slowdown. Whilst these actions may not have an immediate impact, they will certainly help provide economic impetus in the medium to long term.

– Paul Zimmerman is a partner at Deloitte & Touche Corporate Finance.

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