Economic turmoil causes M&A devastation
The number of UK mergers and acquisitions fell by more than half
(54.5%) between the second and third quarters of 2008 while deal
value fell 58.0% from £9.3bn to £3.9bn, according to the latest
figures published today by the Office of National Statistics (ONS)
and analysed by leading business and financial adviser Grant
Thornton.
The statistics highlight how far the market has dropped off
following a slight rise in both number and value of deals between
the first and second quarters.
Overseas acquisitions by UK companies have also plummeted with
total 2008 activity looking likely to reach less than half the 2007
totals of 441 deals worth £57.8bn.
Acquisitions in the UK by foreign companies also fell
significantly with deal value dropping from £21.0bn in the first
quarter and £19.0bn in the second quarter to just £2.9bn in the
third quarter of the year with little prospect of increasing in the
final quarter. The totals for 2008 are likely to be just over
half those of last year.
David Brooks, Head of M&A at Grant Thornton said that
falling deal value reflected not just the lack of available finance
but that, in the opinion of the market, UK companies are currently
significantly overvalued. The ONS figures reflect the findings of
Grant Thornton's latest research report - Securing Finance.
"The market clearly believes that the value of UK companies has
to fall further to reflect economic conditions", he said. "A total
of just £6.8bn spent by both domestic and foreign buyers over a
quarter shows just how wide the gap is between the prices sellers
want to achieve and those that buyers are prepared to pay.
"We're seeing deals put on ice or falling through because
there's no agreement on price. The choice for sellers is stark; get
realistic on pricing or don't sell. Buyers are reluctant to overpay
and are price-chipping but are coming up against sellers who are
unwilling to deviate far from the valuation multiples they believed
they could achieve in the buoyant 2007 market.
"The market has effectively ground to a halt and, in this
market, it's the sellers who have to make the decision to move.
"Given the level of activity we're seeing at the moment, it's
clear that the fourth quarter figures are going to be pretty dismal
too. But we're looking at a market characterised by forced
selling and bottom-picking.
"2009 will be dominated by distressed M&A. Many
companies are caught between a rock and a hard place; they can sell
now for less than they feel their business is worth or hang on and
risk falling into serious trouble at which point there may be
little value to be extracted.
"Both UK and overseas money can afford to wait around to see
where the best deals are to be had; there will be plenty of
opportunities in the coming year", Brooks concluded.