Execs Forecast Strong Year for M&A

Survey respondents expect telecommunications, banking, and energy to be the three most active sectors.
Stephen TaubJune 1, 2006

The urge to merge is even greater this year than last, according to a new KPMG survey.

Fully 88 percent of survey respondents expect to complete at least one merger or acquisition this year; more than 40 percent say their companies have plans to sell, spin-off, or divest a portion of their business during the next 18 months; and 66 percent expect their companies to complete at least one cross-border transaction by year-end.

More than 60 percent of respondents estimate that at least 25,000 deals will be completed worldwide in 2006. Last year, that figure neared 23,000, half of which were cross-border transactions, noted KPMG, citing public reports.

KPMG gathered survey responses from 138 senior corporate executives, including directors, CFOs, development officers, tax directors, and private equity professionals, earlier this spring.

Respondents maintained that the most important reasons their companies would do a deal were enhanced competitive positioning (76 percent), access to new customers or segments (72 percent), increased scale (66 percent), and access to new product markets (61 percent).

The top three industries for M&A activity are expected to be telecommunications (44 percent), banking (30 percent), and energy (24 percent). “While telecommunications seemed to be the most active sector at the beginning of this year, our survey respondents are telling us that we will be seeing a more balanced M&A marketplace across several industries throughout the rest of this year,” said Malcolm Wright, national services leader of KPMG’s Transaction Services practice, in a statement.

Doing deals poses many challenges, of course, especially in the tax arena. Fully 70 percent of respondents warned that hidden or unrecorded liabilities could continue to affect the success rate of transactions; 49 percent cited incomplete planning prior to the transaction as another thorny tax issue. “We’ve often found that unrecorded tax liabilities, even at the state and local level, can significantly diminish the overall value of a transaction,” observed Greg Falk, principal in charge of KPMG’s M&A Tax practice, in a statement.

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