This month’s CFO Forum illustrates just how severe the slowdown in mergers and acquisition activity has become. Of the chief financial officers who responded to Institutional Investor’s survey, only 59.5 percent report that their companies even considered a merger or acquisition in the past year. Of those that considered a deal, just 54.8 percent did one. But the deals were done with care: Three quarters of CFOs are satisfied with their transactions. The other 25 percent say that it is too soon to tell.
Of those that chose not to go forward, 54.5 percent balked at the price demanded, 18.2 percent backed away because their stock prices fell, and more than 18 percent felt that the deal environment had become too risky to press ahead.
Only 12.8 percent of CFOs say that their companies have taken an equity stake in another company in the past year. The average stake taken was small: Two thirds amounted to 20 percent or less. Some 31 percent invested less last year than in 2001. Of those, 64.3 percent say that there were fewer quality investments available, and 35.7 percent say they were burned by such investments the year before.
Furthermore, the equity investments are aimed at more established companies. More than 58 percent invested in later-stage private firms or in publicly traded companies.
Only 8.3 percent of respondents expect capital appreciation from their investments. That pessimism may stem from the fact that fewer than 14 percent of companies realized any gains last year from earlier investments. Indeed, in the past year 42.9 percent of CFOs had to write down losses to reflect declines in market value.
In all, the survey results portend another tough year for investment bankers.
Has your company seriously considered a merger or acquisition in the past year?
Yes 59.5%
No 40.4
If yes, did it go forward with the transaction?
Yes 54.8%
No 45.2
If your company completed the transaction, are you satisfied with the merger or acquisition?
Yes 75.0%
No 0.0
Too soon to tell 25.0
If your company did not go forward, why not? (Check all that apply.)
Price was too high 54.5%
Cash component was too great 9.1
Our stock price fell 18.2
Transaction was too risky at this time 18.2
We changed our minds after due diligence 9.1
It wasn’t a good strategic fit 18.2
Has your company taken an equity stake in another firm during the past year?
Yes 12.8%
No 87.2
If so, how many such investments have you made during the past year?
One 28.6%
Two 42.9
Three 28.6
Four or more 0.0
If so, what is the average size of the stake you have taken?
Less than 5 percent 16.7%
5 to 20 percent 50.0
21 to 50 percent 33.3
If so, how much have you spent overall?
Less than $1 million 0.0%
$1 million to $5 million 16.7
$6 million to $10 million 33.3
$11 million to $15 million 16.7
$16 million to $20 million 0.0
More than $20 million 33.3
How does that compare with the amount of one year ago?
It’s higher 23.1%
It’s lower 30.8
It’s about the same 46.2
If your company has spent less on equity investments in other companies during the past year, why? (Check all that apply.)
Opportunity for capital appreciation is diminished in the current market 7.1%
Reduction in our own earnings meant less funds for such investments 14.3
Reticence related to weak stock market 7.1
Fewer quality investments are available 64.3
We were hurt by losses related to such investments during the previous year 35.7
If you have made equity investments in other companies during the previous year, in what type of company was the majority of your investment activity focused?
A privately held start-up 41.7%
A privately held later-stage company 25.0
A publicly traded company 33.3
If you have made equity investments in other companies during the previous year, what were your objectives? (Check all that apply.)
Capital appreciation 8.3%
Strategic alliance 91.7
An alternative or precursor to outright acquisition 8.3
Has your company realized revenues during the past year associated with gains in the value of minority stakes held in other companies?
Yes 13.9%
No` 86.1
If so, where did those revenues come from?
Selling equity 50.0%
Marking up to market increases in the value of the equity we still hold 50.0
During the previous year, has your company had to write down losses related to these kinds of equity investments?
Yes 42.9%
No 57.1
The results of CFO Forum are based on quarterly surveys of a universe of 1,600 chief financial officers. Because of rounding, responses may not total 100 percent.
©Copyright 2003 Institutional Investor, Inc.
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