KPMG's Corporate Finance team on the south coast reports worldwide deal activity is down by 54 per cent on the same time last year. More proof of a global recession or merely a return to pre-tech boom levels?

The first half of 2000 proved to be the five-year peak in M&A activity with deal values at £1,188bn. As we approach the 2001 half year end, the value of global M&A activity stands at £543bn and deal numbers are down by 32 per cent on the same period last year.

Anthony Vickery, corporate finance partner at KPMG's South Coast office, believes the market will stabilise at these levels. "After intense M&A activity at the beginning of 2000, we have seen a major correction by the market. Our survey suggests we are returning to more sustainable levels of activity following the frenzy over dot coms and telco bids which sent deal numbers and values soaring," he commented.

All the major regions across the world experienced the downturn. The USA and western Europe echoed the global pattern falling 48 per cent and 60 per cent by value respectively on the first half of last year. Interestingly, although western Europe saw the greatest decline in the total value of M&A activity, deal numbers in the region proved more resilient this half coming in 25 per cent down on last year, compared to a 45 per cent drop in the US market. Asia Pacific bucked the trend with a fall in value of only 10 per cent on last year.

Overheated markets caused exaggerated rises in UK M&A activity over the last two years and this year the UK correction has been greater than the global average. Like for like activity dropped in value by 71 per cent since 2000 to £76bn this half, and by 29 per cent in volume, with 1396 deals completed so far this year.

"This correction is in line with our findings that the UK market is returning to a more sustainable level of activity. There are more sellers than buyers and prices are returning to more sustainable levels last seen in 1998," commented Mr Vickery.

"That said, the globalisation of the UK M&A marketplace continues apace with an increasing proportion of UK deals having a cross-border aspect. This year cross-border deals have accounted for 79 per cent of the total UK M&A market with the same split for Western Europe as a whole. By contrast the US is heavily domestic with cross-border deals representing 31% of the market."

For the last two years the UK has been responsible for the highest cross-border spend at the half year point but this year it has fallen to third place with £27bn behind Germany (£34bn) and the US (£32bn).

Mr Vickery continued: "Our research shows that M&A investment from overseas into the UK this year has fallen compared to the first half of 2000. However, it is important to remember that M&A levels are lower the world over and that this year the UK is the second largest target for overseas bidders (£33bn) after the US (£68bn). Clearly, the UK remains a magnet for investment and we do not see this changing over the next few years. However, future trends may be affected by currency uncertainties if there is a prolonged debate on the UK's entry to the Euro."