Confidence to undertake significant M&A is predicted to return to the world's largest companies, according to KPMG's latest analyst predictions, with global forward P/E ratios rising 15 percent over the past 6 months and 12 percent year-on-year.
KPMG International's latest Global M&A Predictor shows that the not only do companies appear to have their appetite back, but they also have the capacity to transact, which is indicated by the forecast net debt to EBITDA ratio, which shows an expected improvement of 15 percent over the next year.
Over the last 2 years, the trend has been for steadily rising capacity – driven by companies’ focus on reducing debt – to be tempered by an equally steady decline in confidence.
However, the tides seem to be finally turning as over the past 6 months, global confidence is actually rising to match capacity. In comparison with June 2012, the difference in appetite is dramatic.
In the previous edition of KPMG International’s 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. Clearly, a lot can happen in 6 months.
“The outlook for 2013 is more positive than it has been for over 2 years and undeniably this is a winning combination for the health of the global M&A market," says Tom Franks, Global Head of Corporate Finance at KPMG International and a partner in the UK firm. "Companies are ready to throw off the shackles of austerity in the hunt for new opportunities.”
The Predictor is also telling us that confidence is up across all sectors, as the overall macroeconomic picture becomes more stable again.
“The US elections are over, the ‘fiscal cliff’ crisis has been averted or at least deferred, and China has begun the transition to a new leadership team so we can now see that there is more certainty than there was 6 months ago, and that is feeding through into transactional confidence and capacity levels,” adds Franks.
Although appetite in healthcare only rose by a modest 11 percent in the past 6 months, it saw a significant expected increase in capacity over the next year of 40 percent.
It was a similar story in technology, where a 9 percent rise in appetite – albeit a healthy increase but below average – was outshone by an expected 32 percent increase in capacity.
Industrials saw appetite rise by 22 percent and capacity by 16 percent.
Basic materials were another success story with a 16 percent rise in capacity and a 37 percent jump in appetite.
“The latest edition of the Predictor tells us that after a prolonged period of negativity things are moving in the right direction for the M&A market. Without a doubt, the next 6 months should be even more interesting to watch,” notes Franks.