Slow M&A activity predicted by KPMG

January 26, 2009
Mergers and acquisitions are unlikely to rebound before the last quarter of this year, international accounting firm KPMG International said.

Transactions will hit "rock bottom" in the third quarter as companies struggle to raise debt financing for acquisitions, said Stephen Barrett, KPMG's London-based chairman of international corporate finance.

"The corner may well be turned late in the second half of this year," Barrett said in a statement. Declining stock markets will make companies more attractive targets, he added.

The pace of mergers and acquisitions dropped 39 percent, to $2.5 trillion, in 2008, as the credit crisis checked companies' ability to fund deals, according to data compiled by Bloomberg.

Banks and insurers worldwide have booked more than $1 trillion in losses and write-downs since the global credit crisis began 18 months ago, forcing companies to abandon takeovers for lack of available debt funding.

"The market players to watch will be those able to execute cash deals, such as companies who preserved cash contingency funds, some sovereign wealth funds and private family offices," Barrett added.

Companies' net debt will probably rise to 1.06 times earnings before interest, tax, depreciation and amortization ratios in 2009, from 0.93 times this year, according to KPMG. The 14-percent deterioration indicates companies will be less eager to start takeovers, the fi rm said.

KPMG analyzed the world's 1,000 biggest companies by market value to compile its data.
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