The Next Level of Service Integration for Mergers and Acquisitions Projects

The 1st Half of 2007 has been at record level :

• An estimated increase of 53% at USD2,500bn budget spent on transactions during 2007 first semester (source : Reuters, Thomson Financial)
• Previous record was in 1999 first semester, with total transactions at USD1,900bn.
• In the US, transactions have grow by 45% up to USD1,030bn.

 

In Europe, Transactions Have Grown by 73% up to USD 1,020 bn.

• European M&A activity is now at US level (though M&A/PMI service providers are generally of US origin).
• Financial services represent 54% of the total, consumer products 17% (growing quickly), and telecoms 11% (decreasing).
• Some mega-deals have fueled this growth (
  ABN-Amro, Alliance Boots).
• Investment funds represent c.13% of the market, with total transactions at USD133bn.
• Investment funds do show however a low growth rate as compared to total market growth rate (+28%, i.e. approximately half market level).

 

A Significant Slowdown is Underway, with an Activity Level in August at 2004/2005 Level:

• -32% in the global value of the M&A deals in August compared to last year, down to USD179bn (source : Thomson Financial).

• Transactions initiated by PE's are particularly hit (-64%), with an investment amount down to the February 2005 level, at USD17bn.

• Only 1 transaction registered over USD5bn in August, never seen since Sept. 2004.

 

Europe is impacted by this downturn:

• US transactions represent USD57bn, down by 26%.
•  Europe accounts for USD44bn, down by 47%.
• Asia is less impacted, with a decrease of 6% only.

 

French professionals have a somewhat optimistic view of the situation:

• Due diligence teams are currently fully booked and have increased their activities as compared to last year.
• Though corporate valuation has been reduced, no major transaction seem to have been written off due to the debt market evolution.

 

We are less optimistic than these views, though not completely bearish:

• The Global M&A market should remain at low level until the debt risk is cleared. This could take several months.
• This trend should apply to the European market as well.
• In Europe, France seem to benefit from a specific situation, which could enable this M&A market to maintain a rather high level of activity.

 

This context has an ambiguous consequence on the PMI market itself.

• Attention to PMI issues - and budget allocation- is directly connected to the level of M&A competition, but also to the level of constraint imposed by the banks on the funding side.
• As post-deal planning and execution capabilities are becoming key competitive factors, budget spent and attention paid to PMI issues tend to increase

 

 

 Conclusions - Recommendations.

 

The post-merger integration market and the M&A market are entering into a new model. The credit crunch is only one aspect of this structural shift - the development of buyers from new countries (Asia, Russia, MEA), the diminishing role of private equities as opposed to the growing role of cash-rich strategic buyers are other significant moves. Each of these elements has an impact on the nature of corporate needs regarding PMI-related advisory services. The Olympic moto "plus haut, plus vite, plus fort" could undoubtedly define the new PMI market. 

 

 

Author: Gilles Ourvoie (gilles.ourvoie@pmifactory.com).

Gilles has worked for c.15 years on strategy and PMI projects for major international groups. Within the Strategy & Transformation consulting activity, he has developped the French PMI Center of Excellence at Gemini Consulting and Capgemini (1997-2004). Between 2004 and 2007, he has launched the Transaction Integration Services practice of Ernst & Young France (within the TAS Corporate Finance), and in the CWEA Area (Italy, Spain, Belgium). As such, he was part of the TIS Global Leadership Team. Since 2007, Gilles is Partner at PMI Factory.