Asia-Pacific remains one of the most active M&A markets however deal volumes have declined while values have risen, according to the latest Global M&A Predictor report from KPMG.
The survey finds that China's forward P/E (price/earnings) ratios have dropped from 14.3 to 12.6 over the last six months, while Hong Kong also noted a fall from 13.8 to 12.5. These declines indicate a fall in future sentiment about growth prospects from 6 months ago, though P/E ratios still remain marginally ahead of mid-2010.
"Declining P/E levels reflect the general uncertainty in the global financial markets as the West seeks to avoid national credit default, stabilise the banking sector and maintain its fragile economic recovery," says Jeremy Fearnley, Head of M&A, KPMG in Hong Kong.
"At the same time, the impact of China's cooling measures is tempering companies' valuations in the domestic markets. On a positive note, however, the continued deleveraging of companies' balance sheets is creating a significant war chest and we expect these to be put to use over the coming 12 months."
Fearnley notes that previous research has shown that in terms of value creation for ASPAC deals, there is a trend of deals delivering value where they are done to expand into new geographical regions. This factor, combined with the relatively lower valuations and growing financial capacity, should be a positive influence on cross-border deal activity in the region.
On a global sector basis, whilst most sectors have seen their valuations decline (from a P/E standpoint), the two to buck the trend have been healthcare and basic materials. Continued demand for scarce resources is expected to drive deal volumes.
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