Merger and acquisition plans remain resilient for privately held businesses around the world

Despite the economic downturn, privately held businesses (PHBs) remain surprisingly resilient in their attitude towards acquisitions, according to research from the Grant Thornton International Business Report. 37% of PHBs globally still plan an acquisition in the next three years, a drop of only 7% from the same study in 2008. Of that 37%, the proportion planning to transact cross-border has actually increased, suggesting that international mergers and acquisitions remain on the agenda as a strategic tool to drive growth.

Mike Hughes, global leader - mergers and acquisitions for Grant Thornton International, explains, "The current tightening of lending policies is clearly impacting transaction volumes at the moment but we believe that arising from these turbulent times there will be attractive opportunities for cash rich or well capitalised businesses to achieve a step change in their business growth by acquiring struggling but fundamentally sound rivals. The next 12 months are likely to be a 'buyer's market' offering opportunities to make strategic acquisitions at attractive valuations. For PHBs considering an acquisition it has never been more important for them to make those deal decisions based on solid due diligence and ensure the correct financing structure is in place to cope with possible downsides in the short term while the economy remains sluggish."

He added, "However, for those owners planning to sell in the immediate future exits at sensible valuations will still be possible, especially for high performing businesses with robust earning streams. Soundly managed businesses that perform well during the downturn represent a choice target and will continue to attract interest amongst corporates and private equity houses looking to acquire high quality assets."

The survey shows that all the BRIC economies (Brazil, Russia, India and mainland China) have lowered their expectations on deals but mainland Chinese companies, which showed a burst of enthusiasm for deal making last year, have revised their plans the most with only 41% now looking for targets compared to 67% in 2008. Amongst BRIC based PHBs still considering deals, however, the proportion looking at cross-border expansion has actually risen from 17% to 22%.

In mainland Europe, PHBs overall showed an increased appetite for deals in the next three years (37% up from 30% last year), with access to new geographic markets cited as the most important driver behind their plans. Karin Curtis, M&A partner at Grant Thornton, France explains, "The current strength of the euro against the pound and the dollar is encouraging companies to consider cross-border acquisitions."
 
Not surprisingly, the survey also revealed that the turmoil in the financial markets has severely reduced the appetite of PHBs to raise capital through a public listing. The proportion of respondents considering this globally fell from 22% to a meagre 10%, with the steepest fall in interest amongst the BRIC economies.

The Grant Thornton International Business Report is an annual survey of the views of senior executives in privately held businesses all over the world. Launched in 1992 in nine European countries the report now surveys over 7,200 PHBs in 36 economies providing territory, regional and global trend data on the economic and commercial issues affecting a sector often described as the 'engine' of the world's economy. Data for eight key industry sectors will be available for the first time in 2009. The research is conducted by Experian Business Strategies Ltd. Grant Thornton International donates US$5 to UNICEF for every completed IBR questionnaire, a donation of over US$39,000 in 2008.

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