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Global recession or reality check?

UK M&A activity in the technology, media and entertainment (TME) sector fell sharply in the first half of this year. Deal value peaked in 2000 at £145bn but reached only £26bn in the first half of 2001, as shown in this survey by KPMG and Dealogic.

Global recession or reality check?

UK M&A activity for the technology, media and entertainment (TME) sector has fallen to its lowest six monthly level since 1999. The survey shows the total value of UK deal activity in the sector has fallen dramatically from a peak of £145bn in 2000 to just over £26bn for the first half of 2001.

The giant £107bn Vodafone/Mannesmann transaction in the first half of 2000 accounted for much of this drop in total deal value, however there was also a 42 per cent fall in deal numbers - 7609 to 434 this half. The only significant deal in the UK marketplace so far this year was BT's acquisition of Viag Interkom completed in January for a total of £8.5bn.

Michael Higgins, Head of Technology, Media and Entertainment at KPMG Corporate Finance, comments: "The level of M&A activity in the first half of 2000 was never sustainable. The recent realignment of values, particularly in the telecoms sector, will create opportunities for financially robust companies with respected management. Whilst this may lead to a rise in deal numbers, the value of M&A activity will only recover when the next wave of strategic consolidation occurs."

In global terms the TME sector had a tougher time with a decline by value of 65 per cent (55 per cent excluding Vodafone) from £643bn in the first half of 2000 compared to £221bn this half. Globally the top deal this year was America Online's purchase of Time Warner for £58bn in January.

TME was not the only sector to experience the steep downturn with overall M&A activity in the UK dropping by 70% since 2000 to £78bn this half, and by 26% in volume, with 1456 deals completed so far this year.

Alongside TME, the financial services sector also failed to record any significant deals in the UK so far this year. By contrast some traditional sectors, namely chemicals and pharmaceuticals, construction, leisure and utilities showed modest increases.

"It is unsurprising that we are now seeing a more realistic level of activity in the technology-driven industries and a marked recovery in traditional industries. There are now real value propositions behind transactions more in line with traditional activity. " commented Higgins.

He continued: "What is clear is that M&A is now predominately an international business - this year cross-border deals accounted for 79 per cent of the total value of UK M&A activity and 90 per cent of the technology, media and entertainment industries."

For the last two years the UK has been responsible for the highest cross-border spend at the half year point but this year it has fallen to third place with £29bn behind Germany (£35bn) and the US (£34bn).

Investment from overseas into the UK this year has also fallen compared to the first half of 2000. However, M&A levels are lower the world over and this year the UK is the second largest target for overseas bidders (£33bn) after the US (£70bn).

 "Despite the downturn in activity levels the UK remains a key economy in the global M&A market and a key centre in Europe." Higgins concluded.

Click here to view survey results (Data supplied by Dealogic)

KPMG Corporate Finance provides a range of independent, investment banking services internationally, specialising in mid-market sized transactions for all sizes of clients. For more information, visit www.kpmg.co.uk

Copyright © 2001 KPMG