Better prospects in 2010 for the M&A market

The survey generally makes encouraging reading, suggesting that although, in 2009, deal activity globally fell 22% compared with 2008, there have been some recent positive signs which pointing to a rebound. In the fourth quarter of 2009, deal volume rose 15% compared with the same period in 2008.

Moreover, some big headline M&A transactions have recently taken place for example Kraft Foods’ takeover of Cadbury, KPMG said.

“It looks likely that 2010 will be a transition year in which deal volumes will increase, with certain sectors dominating the landscape. Companies which have been cautious in 2009 are likely to start testing the waters once again, particularly as there could be many interesting opportunities on the market for those with cash to spare or access to financing,” said Wilson Balachandra (photo), Partner in KPMG Romania.

The downturn has created opportunities for those with access to funding to acquire businesses or assets at a substantial discount. Moreover, respondents to the survey were particularly optimistic about private-equity driven M&A activity, with 61% saying it would increase in 2010.

“Over the past two years, private equity has declined worldwide, largely due to the considerable uncertainty in the market. However, now there is more stability and this makes deals more likely to happen. On a global level, several large private equity deals were announced in the second half of 2009, suggesting that the market has already started to pick up”, said Valentin Tic, Partner M&A Tax in KPMG in Romania.

Romania too saw a major fall in deal activity in 2009, as many investors lost confidence in the market, and in emerging markets as a whole. “There was a particular problem that put deals off or on hold. Sellers were still thinking in terms of the boom years, while buyers were looking for heavy discounts. But prospects for M&A in 2010 in Romania are good. Sellers are now more realistic in their expectations, and there are many sectors that present very interesting opportunities for investors. I’m particularly confident that private equity investors will start to look much more closely at the Romanian market over the next few months”, said Daniela Buhus, Partner, Transaction Services Department.

However, the survey suggests that many challenges remain in the M&A market. As Tic points out “companies and investors which are interested in the M&A need to pay close attention to the tax and regulatory framework, to make sure they understand what obligations they will have to the state authorities before, during and after the transaction. In Romania, the tax system is subject to frequent changes, and so those involved in the deals need to stay constantly in touch with developments”.

“Challenges remain, both globally and in Romania. This survey shows that the number one obstacle is still financing M & A deals. Participants also cited other negative factors, such as uncertainty over revenue projections, disputes about valuations, as well as generally negative market conditions. This is why it is essential for those embarking on M & A deals to get the right advice from people who understand the local conditions. Nevertheless, overall, like the majority of respondents in the survey, I’m optimistic that 2010 will be a better year for M & As globally, but also in Romania,” Balachandra concludes.