KPMG-Wharton Survey Finds Executives Optimistic Over M&A Prospects

NEW YORK, Feb. 16, 2011 /PRNewswire/ -- Pointing to large corporate cash reserves and low interest rates, U.S. business executives are more optimistic about the mergers and acquisitions (M&A) outlook for this year, according to a survey of almost 1,000 executives conducted by KPMG LLP, the audit, tax and advisory firm, and Knowledge@Wharton, the research and analysis arm of The Wharton School of the University of Pennsylvania.

Two-thirds (66 percent) of the senior executive respondents said they are more optimistic about the deal environment than they were a year ago. When asked to name the top two factors making it easier to complete deals in 2011, more than half (56 percent) of respondents said low interest rates, followed by large cash reserves (47 percent) and motivated sellers (33 percent).

"Companies have shifted their focus from survival to growth, and with low interest rates, large cash stockpiles and stronger stock valuations, many are considering inorganic growth through acquisitions," said Dan Tiemann, KPMG's Americas leader for Transactions & Restructuring. "Organizations need to act now to take advantage of this period of economic transition."

Saikat Chaudhuri, a Wharton management professor, agreed. "Now, as we are coming out of the crisis, companies don't want to miss new opportunities. Leaders want to extend their lead," Chaudhuri said.

Interestingly, when asked how they think current economic conditions will affect their own M&A plans, only 31 percent of those responding to the KPMG–Wharton survey said that they would increase their number of deals. In fact, slightly more respondents (33 percent) said that they would reduce the number of deals.  They cited unpredictable revenue projections and general negative market conditions, both with 34 percent of respondents, followed closely by availability of debt financing (32 percent), as the biggest challenges to completing deals in 2011.

"As our survey revealed, it's still a challenging deal environment, which makes conducting meticulous due diligence and a thorough assessment of one's own company's strengths and weaknesses even more critical to deal success," noted KPMG's Tiemann.

Other survey highlights include:

• Survey respondents pointed to general revenue growth (39 percent), expansion of customer base (37 percent), and expansion of geographic reach (36 percent) as the primary reasons driving their own acquisitions this year.

• The two leading reasons for respondents' planned divestitures in 2011 were a change in strategic focus, including product/service/geographic (39 percent), and opportunistic reasons (29 percent).

• Two-thirds (66 percent) of executives still see North America as having the most active M&A market in 2011, followed by China (43 percent) and India (31 percent).

"Although we're seeing many PE firms look to emerging markets because of the potential for higher returns, North America will remain a popular deal market because there are many reasonably-priced acquisition targets and distressed investment opportunities right in our own backyard," said Shawn Hessing, KPMG's national managing partner for Private Equity.

Also, when asked to name the top three industries that will be most active in M&A, banking (39 percent), financial services (30 percent), and healthcare (27 percent) led the pack.

"It's not surprising that the industries most impacted by regulatory and legislative reform would be more active in M&A," said Lisa Madden, national leader of KPMG's M&A Tax practice. "Any time an industry undergoes transformational change and sees more money funneled in, it becomes more attractive to acquirers."

About the Survey

KPMG LLP and Knowledge@Wharton surveyed 992 executives at public companies, private companies, PE firms, and hedge funds during November 2010. For a copy of the report, please go to http://www.kpmginstitutes.com/taxwatch/insights/2011/pdf/confidence-grows-for-ma-2011.pdf.

About KPMG LLP

KPMG LLP, the audit, tax and advisory firm (www.us.kpmg.com), is the U.S. member firm of KPMG International Cooperative ("KPMG International.")  KPMG International's member firms have 138,000 professionals, including more than 7,900 partners, in 150 countries.

Knowledge@Wharton

Knowledge@Wharton is the Wharton School's award-winning online journal of business research and analysis. It has evolved from a single website in 1999 into a network of sites providing cutting-edge thinking on global business to more than 1.7 million registered users in 195 countries. Recognized as the premier online business school publication, Knowledge@Wharton uses the latest technologies, including videos, mobile phone channels and podcasts to engage its audience.

In addition to the U.S. edition of Knowledge@Wharton, the network publishes four regional editions: Universia Knowledge@Wharton (Spanish, Portuguese and English); China Knowledge@Wharton (simplified and traditional Chinese, and English); India Knowledge@Wharton (English); and Arabic Knowledge@Wharton (Arabic and English).

SOURCE KPMG LLP