Global View: Companies big & small doing cross-border deals, shattering record in 1995.

NEW YORK--(BUSINESS WIRE)--Jan. 29, 1996--From small bicycle and windmill manufacturers to giant pharmaceutical and entertainment producers, companies tied the knot across borders in unprecedented numbers in 1995 and the deal pipeline is already filling up this year, KPMG Peat Marwick LLP reports.

KPMG, an international assurance and advisory firm, says cross-border acquisitions, joint ventures and minority investments rose 12 percent in number and 17 percent in value in 1995 to a record 5,952 deals worth $229 billion. The previous record was set in 1994: 5,312 deals valued at $196 billion.

``Halfway through the decade, we see four strategic drivers of cross-border deals: globalization, a renewed focus on core business, consolidation and the linkage of product or service with distribution," notes Steve Blum, KPMG's U.S. national director of Corporate Finance. ``The cross-border boom is also fueled by circumstances: buoyant equity markets in the United States and the strengthening dollar."

The cross-border deals -- where the purchaser and target are based in different countries -- themselves are getting bigger. The average value rose to $39 million, from $37 million, and the number of megadeals -- transactions valued at more than $1 billion -- soared to 48, from 37. The biggest of them all in 1995 was German chemical giant Hoechst's $7.1 billion purchase of the U.S. drug company Marion Merrell Dow of the United States. Overall, spending on megadeals jumped 47 percent, to $98 billion.

``But cross-border M&A is not just for the big players," noted KPMG's Blum. ``Many smaller companies are looking across borders to acquire or merge as they seek to gain a competitive edge, access to new markets and improved distribution."

In the mid-sized category, for example, Fremont, a U.S. company, bought a Bermuda bicycle manufacturer for $60 million, and at the smaller end of the spectrum, Wind Technik Nord of Germany spent just $800,000 on a windmill joint venture with Wind Power of India.

US Still the Center of Attention

The United States is becoming an even bigger player in mergers and acquisitions worldwide. The United States widened its lead as the world's biggest purchaser. U.S.-based companies spent $64 billion, 47 percent more than in 1994, including major utility deals in Australia and chemical and energy purchases in Britain, France and Canada. Canadians and Germans did a lot of deal shopping in the United States, contributing to the total of $60 billion spent on U.S. targets in such industries as entertainment, biopharmaceuticals, food, chemicals and energy. British companies spent $11.6 billion in the United States, Canadians $11.4 billion and Germans $9.7 billion. And, continuing their rebound in global M&A, Japanese companies nearly quadrupled their 1995 U.S. deal spending, to $5.3 billion.

Globally, China remained the second most popular target for deals, attracting 630, after the United States (849). Cross-border purchasers continue to be drawn to a major middle class that may emerge if China's economy continues on its current path.

Deal spending by German companies rose 61 percent, while outlays by British firms fell 27 percent, indicating that Europe's economic and financial fulcrum has shifted east. Britain even became a popular German target. Germany's Dresdner Bank spent $1.6 billion on Kleinwort Benson of Britain while Veba purchased a stake in Cable & Wireless for $1.5 billion.

New Year, New Record Possible

The factors fueling cross-border mergers and acquisitions last year are still in place, so 1996 may break more records, Blum predicts. ``Strong capital markets, the reemergence of Japan, the strengthening of both the dollar and German mark are all still in place," Blum noted.

Utilities should be cross-border targets as deregulation progresses and U.S. firms apply expertise abroad. Future U.S. targets, meanwhile, may include mid-sized airlines in alliances with major carriers elsewhere.

Questions remain, however, about about how the federal budget crisis and the U.S. presidential election will affect purchasers and sellers. Continued uncertainty about those issues could diminish M&A, but approval of a corporate capital gains tax cut could be a catalyst.

``If the capital gains legislation is approved, the tax cost of selling a U.S. business will drop, the U.S. dollar will strengthen and asking prices for privately held targets will fall," Blum predicted. He also predicted that such a tax cut would stimulate core-business reinvestment and non-core divestitures.

KPMG's quarterly study of cross-border deals is based on announced transactions. Figures for 1994 have been adjusted for pricing changes, deals that were not completed and other factors.

KPMG Peat Marwick LLP is the U.S. practice of KPMG, The Global Leader among professional services firms. Worldwide, KPMG has more than 6,000 partners and 72,000 professionals serving clients through 1,100 offices in 829 cities in 136 countries. In the U.S., KPMG partners and professionals deliver a wide range of value-added consulting, assurance and tax services in five markets: financial services; manufacturing, retailing and distribution; health care and life sciences; information, communications and entertainment; and public services.

CONTACT: Andy Katell

Fleishman-Hillard

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Mar Dee Baker

KPMG Peat Marwick LLP

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