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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. Large mergers take more courage." Reported volumes are made up of smaller, opportunistic purchases or clean-up operations, such as Banca di Roma's acquisition of Bipop-Carire or AT&T's of the remaining 77% of Telecorp that it didn't already own.

M&A bankers may cling to the hope that CEOs and CFOs will rediscover their passion for deal-making but the rising tide of companies now being forced to admit that they've wasted shareholders' money on previous deals will dampen their ardour.

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