Friday, August 17, 2007

KPMG Predicts that Global M&A Market is about to Peak

By Staff Writers, August 2007

Global M&A Predictor of KPMG Corporate Finance suggests that the Global Mergers and Acquisitions market is going to peak, and further predicts a fall in overall deal volumes this year. KPMG believes that in the year 2007 the global deal volumes will be much less than those achieved in the year 2006.

Global 1,000 M&A Predictor of KPMG Corporate Finance also believes that the latest data of Dealogic which illustrates increasing average deal size on lower volumes, signifies a "final hurrah" with less, but bigger deals being completed.

Stephen Barrett, International Chairman, Corporate Finance at KPMG, comments that "Global activity is about to peak, certainly in terms of deal volume, and we foresee a continued fall in deal numbers during the course of 2007."

Global 1,000 analysis of KPMG reveals that in the first five months of the year 2007, there was a major inconsistency between the main trend indicators of deal values and volumes. The study done by KPMG further reveals that in spite of conservative balance sheets, the appetite for M&A transactions seems to be slowing down.

Europe, out of the major global regions, mainly remains positive in terms of potential M&A activity. In terms of valuation, the U.S remains static. In terms of sector regions, M&A prospects seem to exist in Oil and Gas (North America), Basic Materials (North America), Utilities (Europe), Industrial (Europe) and Consumer Service (Europe). The analysis done by KPMG shows that out of all the main global regions, Europe continues shows the strongest M&A picture.

Monday, August 13, 2007

Indian M&A Deals Update (Mar-July 07)

North America and Asia were the favourite hunting grounds of India Inc on global acquisition chase as the takeovers deals in these region touched $7 billion and $4.2 billion in the first four months of 2007-08, according to Assocham Eco Pulse Study (AEP). India Inc's global acquisition deals have been worth $15.3 billion. Deals with US-based companies worth $5.1 billion were accomplished during the period April-July 2007 as tracked by the AEP in Study on Mergers & Acquisitions during April-July 2007-08. Tata Group was at the forefront with their total deal values worth $2.13 billion in steel, hospitality and automotives sector. Essar Group acquired Minnesota Steel for $1.65 billion in the US. Reliance Communication expanded to US communications market by acquiring Yipes for $300 million while Infosys plans to acquire Phillips Global for $200 million. Another big acquisition was that of Globeleq by D S Construction for $542 million.

"The equation of business relations with the western countries is undergoing a significant change. Indian business leaders are aiming inorganic expansion through the most industrialised country of the world", said Venugopal Dhoot, President, Assocham, commenting on the success of Indian entrepreneurs in acquiring high value companies based in US. Metal companies in Canada were traced by the Indian bluechips with the war chest of $1.7 billion. Whereas Essar Global acquired Algoma Steel for $1.58 billion, Aditya Birla acquired announced take over of Utkal Alumina International for $0.19 billion. Among the Asian countries, Vietnam was the largest receiver of the deal money as Tata Steel entered into a joint venture with Vietnam Steel with 65% stake for $3.5 billion. Indonesia, Israel and Singapore are the other nations.

12 August 2007, Excerpts sourced from Financial Express

Friday, August 3, 2007

Top Automakers driving for efficient logistics

2006 and 2007 have been eventful years for the automotive sector. It has seen a huge amount of restructuring, not only in its supply chain but also among the vehicle manufacturers themselves. DaimlerChrysler has ceased to exist with the sale of the Chrysler business to a private equity house and VW Group is now effectively controlled by Porsche. And a large proportion of the US component suppliers remain in bankruptcy protection. The implications of these changes for logistics are substantial. In the case of VW, there appear to have been organisational changes directed in part to creating new logistics systems. This is a response to the success of the KOVP logistics system at BMW, a major competitor to VW’s Audi brand.

While the automotive logistics markets is mature in the traditional markets of Japan, Western Europe and North America, it is growing vigorously in the new markets, such as China, central Europe, Russia and Turkey.

Over recent years, logistics has risen up the corporate agenda of almost all vehicle manufacturers. Most now either have programmes in place or are working on projects to develop their logistics systems. It has been realised by most VMs that logistics is fundamental not only to the efficient working of their assembly plants, but is also key to the management of their markets.

In parallel with the greater sophistication of these logistics systems is an increasing need for more sophisticated services from LSPs. This is seen particularly in finished vehicle logistics, where capabilities such as track-and-trace and greater visibility of inventory are now essential.

A large number of logistics providers compete for contracts with the vehicle manufacturers, which, in contrast, are few in number and well informed about the market.

The result is that operating margins among LSPs servicing this market are often poor, with low organic growth. LSPs, however, continue to be attracted by the large volumes offered.

Assembly plants can easily cost t500m and the vehicle manufacturer feels under intense pressure to utilise this investment to the maximum. This can be characterized as "production orientation".

Raw materials and components need to be fed into the assembly plant, coordinated with the production schedule. This has been perceived as the central logistics task in the automotive supply chain and one that in the past was given to production engineers.

The attitude to logistics changed in the 1980s with the emergence of the Toyota Production System. The greater prominence given to logistics-related ideas such as JIT has resulted in increased prominence for logistics managers and more integration between different types of logistics process in the supply chain.

Toyota has the most coherent approach to logistics, closely followed (but in a very different manner) by BMW. It is no coincidence that these two companies are among the most successful vehicle manufacturers.

Most passenger vehicles are made near the market where they will be sold. Even components are manufactured near the assembly plant. Within Europe, for example, it is quite usual for 90% of component suppliers to be located within 100km of the assembly plant. This supply chain geography is so pronounced that the car industry has created specific locations for suppliers next to its assembly plants, known as supplier parks. Components are then fed directly into the assembly plant often using conveyer belts or forklift trucks.

The use of supplier parks also improves communication between component supplier and vehicle manufacturer.

But Tier 1 suppliers are also faced with the contradictory demands of vehicle manufacturers. On the one hand they want suppliers to invest in logistics or assembly facilities near assembly plants, but are unwilling to commit themselves to suppliers for long enough to ensure that the investment is covered. Consequently there is a danger that suppliers will be left with facilities at or near the VM's assembly plant which are redundant or under-used.

Many LSPs view this as an opportunity for outsourcing, with several suppliers sharing facilities owned and run by the LSP. This appears logical, but conflicts with the unwillingness of many T1 suppliers to outsource assembly operations which they regard as core competencies.

Logistics is usually one of the core functions of such near-plant facilities. Their main function is to break-bulk, and feed components into the assembly plant in a sequence dictated by the production schedule. This would suggest that LSPs are well positioned to offer such services within shared-user facilities, certainly the case in many plants. However, many larger T1 suppliers are very aware of the importance of logistics as a core competency and are unwilling to relinquish it to LSPs on a large scale.

As a consequence, the market for such centres may appear more promising for LSPs than in reality.

Reference: International Freighting Weekly