M&A activity to stay strong in 2008

Date: 18-12-2007
Source: ABC Melbourne

Financial services firm KPMG expects 2008 will be another strong year for mergers and acquisitions (M&A) but could be affected by a tightening credit market.

KPMG's national head of M&A, Robert Bazzani, said today that in calendar 2007, M&A activity in Australia had almost doubled to $133 billion from $67 billion in the prior year.

"We see 2008 as also being strong for the M&A market, with continued presence of trade buyers in this space," Mr Bazzani said.

"The key uncertainty is the move towards the crystallisation of exposures of large financial institutions in the credit markets.

"This is likely to take some time to play out and will affect credit liquidity at the top end of the market as well as repricing credit and equity risks."

Mr Bazzani said the size and number of deals rose in 2007 and involved iconic Australian businesses such as retailer Coles Group.

M&A activity eased in July and August as a result of a tightening in global credit markets and volatility on share markets, but the slowdown was temporary.

During 2007, the average deal size almost doubled from $104 million compared with $60 million in 2006, with overseas buyers having a significant influence on increasing the average value of deals.

Overseas buyers spent $55 billion, or more than 40 per cent of the total amount spent in the market, but accounted for just 20 per cent of the deals completed.

The lion's share of acquisitions involved trade buyers, but the proportion of the number of deals involving private equity increased slightly to about seven per cent from 6.6 per cent in 2006.

Volatility on global debt markets contributed to the total value of deals involving private equity firms falling to about 11 per cent, from 19 per cent in 2006.

The top deals involving private equity were Morgan Stanley's acquisition of Investa Property Group and CVC Asia Pacific's stake in PBL media assets.

The top five sectors for M&A activity were industrial markets, retail, finance, utilities and transport/logistics.

In the industrial markets sector there was a 340 per cent increase in the amount spent on M&A compared with 2006.

Overseas acquirers were active in the industrial markets sector and the utilities sector, with deals such as Cemex's $14 billion acquisition of building materials firm Rinker.

The utilities sector comprised about 12 per cent of the value of all M&A activity in 2007 but the value, number and average size of deals fell compared with 2006.