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Cautious markets reflect change from bull to bear Back  
In this year’s special focus on Mergers and Acquisitions, Finance has carried out an opinion survey among corporate finance advisers on market developments in M&A, MBOs and other types of corporate finance transactions. The answers together capture present thinking among Ireland’s corporate finance advisers on important topics such as sources of new finance, valuations, best deal structures, corporate restructuring and the degree of risk aversion among Irish management.
This month’s Finance magazine M&A survey shows that corporate advisors have seen a change in the market already and are predicting that old economy trade sales will be the dominant feature of a more muted market during the remainder of 2001. This compares with the trend for early stage acquisitions and management buyouts seen in the Finance survey last year.

Overall the respondents appear much more cautious on the prospects for the M&A market over the next year, and evidence suggests that many deals have either been cancelled or put on hold until the market settles. However it is not all doom and gloom. The shift from the bull to the bear market means that the drivers for M&A deals will be different, with an emphasis on restructuring to withstand the market dynamics.

Despite the slump in the Irish and international M&A markets during the first quarter of 2001 (Irish market o1.5 billion Q1 2001; o7.6 billion Q1 2000), our respondents say that selling prices are still strong - so it may not yet be the time for M&A bargain hunting.

But while there is an evident slowdown in the volume and value of deals, survey respondents have increased their Price/earnings ratio valuations on some Irish companies from last year. Notably in Irish non-technology stocks, valuations have risen from an estimated consensus of 9 in 1999 to an estimated 10.5 in 2000.

Irish M&A advisors still see the telecommunications sector as being a hive of activity despite the international slowdown in valuations. The Irish financial services sector too is touted for action in the coming 12 months.

In terms of funding sources, debt finance from banks is almost unanimously back on top following the trend last year for funding from corporate and private investors last year.

International interest in the Irish M&A market is still buoyant despite the international slowdown and the appearance of the bear market - with one respondent estimating that over 90 per cent of all Irish M&A deals involve a foreign acquirer. This activity seems set to continue also.
The advent of the international bear market will see the drivers for M&A changing to a more defensive stance, with the emphasis being on restructuring for the future.

According to Hugh McCutcheon, managing director of ABN AMRO Corporate Finance ‘many smaller and middle cap Irish stocks are undervalued. With fund managers increasingly moving away from those stocks, they represent good value for potential acquirers and management may seek to take the companies private if earnings performance is not recognised in the share price.’

Meanwhile Bryan Evans, corporate finance partner at PricewaterhouseCoopers said ‘Recent slight improvement in sentiment towards second line stocks has probably reduced the likelihood of an imminent wave of restructuring although I would expect a small number of trade bids in 2001. Additionally, there are good prospects for public to private deals in one or two cases where dominant shareholders no longer see the point of a stockmarket listing.’

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