Management and Strategy News
Global M&A market says 'welcome back' to confidence
- Capacity and confidence both up
- Confidence up in all sectors
- Despite European economy woes, companies are feeling positive
KPMG International's latest
Global M&A Predictor shows that the confidence to undertake
significant M&A is predicted to return to the world's largest companies,
according to the latest analyst predictions, with global forward P/E
ratios (by which we measure appetite) rising 15 percent over the past 6
months and 12 percent year-on-year. 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.
Tom Franks, Global Head of Corporate Finance at KPMG International and a
partner in the UK firm, comments: “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. Companies are ready
to throw off the shackles of austerity in the hunt for new
The Predictor is also telling us that confidence is up across all
sectors, as the overall macroeconomic picture becomes more stable again.
Franks adds, “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.”
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.
Despite on-going troubles in the Eurozone, European companies are
looking particularly confident, with forward P/E ratios (measuring
appetite) 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 next year as
companies capitalize on the low interest rate environment to pay down
Looking at the country level, although there are understandably
considerable variations between markets, the overall trends for
confidence and capacity are both overwhelmingly positive. Germany is a
good example with an appetite increase of 26 percent since June 2012 and
a forecast capacity rise of 20 percent. Similarly, in the US, appetite
increased by 10 percent and capacity by 21 percent. Even the UK, after
the gloom of a double dip recession, matches the global confidence
figure at a healthy 15 percent, with expected capacity rising by 11
Franks concludes, “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.”
About the Global M&A Predictor:
KPMG’s Global M&A Predictor, established in 2007, is a forward-looking
tool that helps member firm clients to forecast worldwide trends in
mergers and acquisitions. The Predictor looks at the appetite and
capacity for M&A deals by tracking and projecting important indicators
12 months forward. The rise or fall of forward P/E (price/earnings)
ratios offers a good guide to the overall market confidence, while net
debt to EBITDA (earnings before tax, depreciation and amortization)
ratios help gauge the capacity of companies to fund future acquisitions.
The Predictor covers the world by sector and region. It is produced
bi-annually, using data comprised from 1,000 of the largest companies in
the world by market capitalization. The financial services and property
sectors are excluded from our analysis, as net debt/EBITDA ratios are
not considered relevant in these industries. All the raw data within the
Predictor is sourced from S&P Capital IQ. Where possible, earnings and
EBITDA data is on a pre-exceptional basis with the exception of Japan,
for which GAAP has been used.
This press release originally appeared on the
How Will You Measure Your Life? by 2013 Thinkers50 Award Winner Clayton M. Christensen