May 2002
Buyers regret picking up cheap assets
Hints of a revival of M&A activity should not breed false hopes of a new boom. Accounting rule changes are forcing acquirers to write down goodwill on pricey deals, fuelling the view that M&A doesn’t create shareholder value but destroys it.
Investment bankers were hugely relieved to see a suddenly
flurry of M&A deals in March - Sonera bid $6.5 billion for
Telia, Imperial Tobacco offered $4.5 billion for Reemtsma and Bcom3
bought Publicis for $3.2 billion. At last, bankers said, confident
chief executives were beginning to chase value in cheap corporate
assets. But just as a few swallows do not a summer make nor do a
few mergers indicate an M&A market heading back to the
boom-time volumes of 2000.
According to the latest figures released by Dealogic, M&A
activity reached its lowest levels for six years in the first
quarter of 2002 and there were few headline-grabbing transactions.
"This is not an environment that encourages big deals," says Rick
Escherich, an analyst who covers the M&A market at JPMorgan.
"We are seeing safe deals, such as companies buying the 20% of a
firm that they don't own already....
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