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BDO M&A Survey 2011 – Strong M&A Demand Hampered By “Valuation Gap”

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BDO, the accountancy and business advisory firm, today released its annual M&A Survey, polling the views of CEOs and Financial Directors of mid-market companies1.

Key findings included: 55% of companies that sought to make a transaction in the last 12 months failed to do so. On average one transaction has been completed for every eight considered in the last 24 months. 84% of businesses believe that mergers and acquisitions they have completed over the last 24 months have met or exceeded expectations. Acquisitions are being sought as drivers for growth; 85% of respondents have growth targets in excess of inflation, with over a quarter (28%) targeting turnover growth of over 25%. Acquisitions are part of business strategy for three quarters of companies (76%9), with a particular desire amongst publicly quoted and Private Equity backed companies. 54% of companies looking to make acquisitions consider diversification into a new sector as a focus, with 25% highlighting TMT as the most attractive.

Roger Buckley, Partner, BDO commented: “In the midst of these turbulent market conditions, it is encouraging to see that the majority of companies are actively looking to grow, rather than simply remain afloat. Obviously challenges remain. With many companies sitting on cash, there is less pressure to make divestments and it is clear a „valuation gap? exists between buyers, who are targeting acquisitions for growth purposes and sellers, who are in no rush. Vendor price expectations have been the greatest hurdle for acquisitive businesses, but financing, processes and finding opportunities are also significant.”

Other findings included:

  • More than a third of companies (37%) are anticipating making divestments as the market recovers, with most of these expecting to do so in the next two years.
  • Of those companies considering divestments, six in ten (59%) believe that valuations will stay the same over the next 12 months, and the same proportion (59%) think they will increase after this point.
  • 85% of companies consult their non-executive directors in the consideration process for M&A activity, with almost a third of companies (32%) giving them full involvement throughout the transaction including the assessment, approval and sign-off process.
  • Over seven in ten acquisitive companies (71%) will look to advisers to source deals.

Roger Buckley continued: “There is evidence to suggest that companies looking to divest are expecting to become more comfortable with valuations in the next year, which should help with supply. However, increased supply does not necessarily translate into value for money for potential acquirers. This explains why the views of advisers and non-executive directors are increasingly being sought, with companies appreciating the value of independent opinion in getting the deal right.”

1Concluding in July 2011, 121 telephone interviews were carried out with senior decision makers involved in corporate strategy within acquisitive mid-market UK companies. The fieldwork was conducted by Critical Research and analysed by David Burton Associates.

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