I spend my working days at Equiteq deal-making with buyers and sellers so here's my synopsis of what I'm seeing on the ground as the worst (fingers crossed!) of the recession seems to be behind us. The headline is that after a big pause in acquisition programmes caused by economic uncertainty buyer interest and activity is resuming, however there is a substantial mismatch in valuation expectations between buyers and sellers!

Buyers seem to have concluded that the world is not coming to an end and embargoes on acquisition activity are being lifted because the need for growth has not gone away. My barometer for this uplift in activity is that my calls are now being taken and discussions are constructive! However a lot of the interest is what I would describe as speculative. Buyers are coming in with 'low ball' offers and massive earn-out conditions with little up-front cash in the deal structure. Why? Because they're more risk averse and believe that market conditions are in their favour. The bigger firms on the acquiring side of the fence have problems of their own, their valuations have taken a dive and many quoted consulting companies have share prices at rock-bottom levels. This on its own is an argument used in driving down the offers made to sellers. The issue of raising finance has also not gone away and this is also hampering deals.

If you're on the selling side of the fence, acquirers are looking for quality and are much more focused on finding firms with great strategic fit, unique propositions and those that will be transformational in nature. There is a lot of overhead in an acquisition and unless its a strategic buy with transformational prospects the deal may not be worth the effort for the buyer. So if you're a firm with these qualities AND you've performed well during the recession, then you will be a prime target. Therein lies the dilemma, the buyer wants you at a bargain price, but you're not going to sell yourself short and why should you!

Result - Mexican stand-offs and lots more dancing around handbags to try and reach a deal!

However the market has been in a big freeze and this mismatch in expectations is all part of the thawing process. Activity levels ARE picking up, smart buyers who want to be first movers are leading the pace and a number of sectors are in demand, particularly Energy, Environmental and some parts of Financial Services. I'm certainly encouraged by the increased temperature of my telephone handset!

This is the current position as we see it as of October 2009. Data collected for deals done in Europe shows that the recession has dampened activity substantially compared to recent years. However sentiment 'on the ground' appears to be moving positively and we're seeing a fair amount of buyer interest as confidence builds each month. The data is for deal values above £3m and note that there is a lag where deals have taken place but not yet reported. 2009 is the yellow line.