Concerns about the economic situation are generating uncertainty in corporate M&A departments and among leading investment bankers and M&A advisors, according to a survey by CMS Hasche Sigle.
The survey indicates that the funding environment for M&A deals has seldom been better: for the second time in a row, company managers awarded a new top mark for access to acquisition financing; investment bankers and M&A advisors see the financing environment as very supportive not just for strategic buyers, but also for private equity investors.
In the latter case, their assessment surpasses the existing record. As a result, hardly any transactions currently fail due to financing, i.e. the financing environment scored quite low among the respondents as a possible reason for failure of a transaction. In contrast, the uncertain macroeconomic situation is coming much more to the fore – company representatives rank this "deal breaker" 39 per cent higher and investment bankers 33 per cent higher than in June.
"M&A projects are nonetheless still getting off the ground," says Dr Thomas Meyding, partner at CMS Hasche Sigle and head of the CMS corporate group. "Private equity investors are playing a more prominent role again as potential buyers."
Looking ahead to the coming months, companies, banks and consulting firms all agree that M&A activity is unlikely to get any easier. There was a 20 per cent fall in the number of respondents in both groups agreeing that the M&A environment will improve in the coming months, compared to the June survey. Any deterioration in the economic situation could affect private equity investors in particular. Unlike companies, they cannot resort to their own cash reserves for funding instead of bank loans. Accordingly, respondents increasingly take the view that strategic investors are at an advantage when competing with private equity firms for attractive takeover targets. Given the well-filled coffers of strategic investors, it will be crucial for the competitiveness of private equity investors whether a slow-down in economic activity is reflected in the availability and conditions of buy-out financing, according to CMS partner Dr Oliver Wolfgramm. "The trend in the past two and a half years tends to suggest that this will not be the case."
The M&A panel's responses are based on information about mandates that have already been awarded so the outlook is unaffected by the recent period of economic weakness. The indications are that M&A advisors can be divided into two groups. Those handling relatively large transactions are being kept very busy and expect their workload to remain high in the coming months, while the upswing in recent months has largely bypassed advisors dealing with small-cap transactions. Although they have now fallen behind their previous forecast in terms of workload, they are optimistic again in their latest predictions.
The focused survey of corporate M&A managers revealed this time that the importance of compliance has increased recently with regard to transactions and due diligence. Almost half of the respondents see strong growth here over the past five years, while one third consider growth to have been slight. When making acquisitions, the ability to gain protection through compliance guarantees against certain risks, such as bribery or market agreements and price fixing, is important or very important for about 75 per cent of the respondents.
