M&A picture is rosiest for years

THE BIG City dealmakers have been keeping themselves busy recently: mergers and acquisitions (M&A) for the first half this year are well up on the same period of last year, new research shows.

There has been £67bn-worth of M&A deals so far this year, 33% up on the £50bn seen in the first half of last year, according to research by KPMG's corporate finance division. KPMG said it represents the rosiest picture for UK dealmaking to come out of their bi-annual research in the last six years.

Although there are fewer deals being made compared to last year (1,273 as opposed to 1,367), they have been greater in size: the average rising from £36.6m in the first half of 2004 to £52.6m for 2005 to date.

The research also points to the booming private equity sector. Private equity firms have closed deals valued at a total of £14.8bn ? a growth of 18% on the first half of last year.

Stephen Barrett, International Chairman of KPMG's corporate finance practice, said: 'Although UK deal numbers have not matched the most bullish predictions, the value of activity is clearly on an upward track. This is a genuine pick-up across the larger end of the market with 30 deals over $1bn closing so far this half.'

Deals by financial sponsors in the UK now account for 32% of the value of all private equity activity globally. Barrett adds: 'Whichever way you cut the data, the global M&A market can be seen to have hit the 'bottom' mid-way through 2003. While the route into the downturn may have been steep, the climb out has been more gradual. This is consistent with the current global backdrop of stable capital markets and on-going fragility in corporate confidence.'

Real estate is the only sector to have grown consistently every half year since the M&A market low of 2003 and is now the largest sector by value and second largest by number of deals behind the media, information and software sector. This growth looks set to continue with a flurry of recent announced deals such as British Land's acquisition of Pillar and Land Securities' takeover of Tops Estates.

Barrett says: 'These figures illustrate the huge demand for property in the UK which is currently outstripping supply. This has given rise to high levels of debt in transactions leading some commentators to warn of over-exposure. The key question is whether this pace of activity can continue given the recovery in equities as an alternative investment platform and the slowdown in consumer spending hitting rental values.'