Confidence Returns to Global M&A Market

KPMG’s latest M&A Predictor shows a strong rebound in companies’ appetite for deals. According to analyst predictions, global forward price/earnings (P/E) ratios – KPMG’s measure for appetite – has risen 15 percent over the past six months and 12 percent year-on-year.


While the trend over the last two years has been that of steadily rising capacity driven by companies’ focus on debt reduction, the M&A market has been marked by equally steady decline in confidence.


The tides are finally turning- in comparison with June 2012, the difference in appetite is dramatic.


In the previous edition of the M&A Predictor, analyst predictions showed that appetite levels for M&A were falling across the board. In other words, confidence was dropping everywhere.


At the end of 2012, confidence is rising in almost every country covered by the data. Singapore, for instance, saw its forward P/E ratios rose 18 percent over the past six months and 20 percent year-on-year.


This new found appetite for deals is also matched by an increasing capacity to transact. The net debt to earnings before tax, depreciation and amortisation (EBITDA) – a gauge of companies’ capacity to fund future acquisitions – also indicates an expected improvement of 15 percent over the coming year. Statistics for


Singapore show an expected improvement of nine percent over the coming year.


“The figures suggest that the global M&A market has reached a watershed and there is a great change in appetite," says Diana Koh, Head of Singapore Private Equity and Transaction Services, KPMG in Singapore.


“The outlook for 2013 is more positive than it has been for over two years. Companies are ready to throw off the shackles of austerity in the hunt for new opportunities.”


Confidence rises in all sectors
The Predictor also shows growing confidence across all sectors, which could be the natural result of a more stable global macroeconomic picture.


“The elections in the United States of America are over, the ‘fiscal cliff’ crisis seems to have been averted or at least deferred, and China has started transiting to a new leadership team," adds Koh.


“There is more certainty now compared to six months ago and this is reflected by increasing transactional confidence and capacity levels.”


Although appetite in healthcare only rose a modest 11 percent in the past six months, it saw a significant expected increase in capacity over the coming year of 40 percent. Likewise, the technology sector saw a nine percent increase in appetite and an expected 32 percent increase in capacity.


Industrials saw appetite rise by 22 percent and capacity by 16 percent. Basic materials also saw a recovery with a 16 percent rise in capacity and a 37 percent jump in appetite.


For Singapore, Koh is expecting the consumer and energy sectors to continue seeing high levels of interest.


“Healthcare is also emerging as an up-and-coming sector. This is largely due to demographic reasons such as an ageing population, more affluence and rising consumer expectations. The boom in medical tourism is a contributing factor too,” she said.


Bullish European corporates
Despite on-going troubles in the Eurozone, European companies are looking particularly confident, with forward P/E ratios up 19 percent on June 2012 and up 16 percent over 12 months. European forecast net debt to EBITDA ratios are similarly positive, showing an increase in capacity of 12 percent over the coming year as companies capitalise on the low interest rate environment to pay down debt.


On a country level, the overall trends for confidence and capacity are both overwhelmingly positive.


Germany saw an appetite increase of 26 percent since June 2012 and a forecast capacity rise of 20 percent.


Similarly, in the United States of America, appetite increased by 10 percent and capacity by 21 percent.


Even the United Kingdom - after the gloom of a double dip recession - matched the global confidence figure at a healthy 15 percent, with expected capacity rising by 11 percent.


“The latest edition of the Predictor tells us things are moving in the right direction for the M&A market after a prolonged period of negativity. Without a doubt, the next six months should be even more interesting to watch.”


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