M&A deals that create value increased despite recession

While recessions are often considered periods where value is destroyed and growth slowed, a study of merger and acquisitions (M&A) that were conducted at the height of the financial crisis indicates otherwise.

According to data released today by KPMG International, deals conducted across this time period were 15 per cent more likely to create value than those conducted in the pre-recessionary boom-years.
 
The survey also found that the primary driver behind the M&A activity was growth. Almost half of all respondents (48 per cent) cited increased market share as one of their primary deal drivers, with 35 per cent pointing to geographic growth strategies and 27 per cent citing a desire to expand into new growth sectors.

''In a period characterised by the credit crunch and the subsequent global recession, most analysts typically expected M&A activity to destroy more value than it created,'' noted John Kelly, KPMG's Head of Transaction Services for Europe, the Middle East and Africa (EMA). ''But in reality the results were actually quite good, with some buyers finding the recession to be an opportunity to gain market share and extend their growth to new markets.''
 
The survey, A New Dawn: Good Deals in Challenging Times, shows that the proportion of value-creating deals rose from 27 per cent in 2005-2006 to 31 per cent in this most recent survey period.

Resurgence of cross-border M&A
A majority of the deals in this research were reported to be domestic in nature, but the report also notes a greater emphasis – particularly in Europe – towards cross-border activity and investments into emerging markets.

However, deals conducted in the emerging markets are not guaranteed to create value.  

In ASPAC, for example, the survey shows that deals were just as likely to create value as they were to destroy it. And while the proportion of revenue-enhancing deals in the ASPAC region tripled over the previous two survey periods (from 12 per cent in 2003-2005 to 36 per cent in 2005-2007), this survey finds that growth had slowed dramatically in the most recent period, rising just four per cent.