Significant M&A activity predicted to return

Significant M&A activity predicted to return: largest companies feeling more positive, hungry for new opportunities.

Extract from KPMG Press Release:

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 opportunities.”

The Predictoris 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 debt.

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 percent.

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.”

More … http://www.kpmg.com/global/en/issuesandinsights/articlespublications/press-releases/pages/global-ma-market-says-welcome-back-to-confidence.aspx