Global M&A environment to deteriorate in H2 08: KPMG
22 July 2008
KPMG Corporate Finance's Global M&A Predictor forecasts a continued fall in global merger and acquisition activity (M&A), into the second half of 2008. Having accurately called the top of the M&A market a year ago, the latest version of KPMG's Global M&A Predictor provides compelling evidence of a decreasing appetite for deals and deterioration in the capacity to do deals globally.
The Predictor a forward looking index of 1,000 leading companies' estimated net debt to EBITDA ratios and forward Price Earnings ratios.
''Findings from our latest Predictor reveal strong evidence that market conditions for M&A transactions will continue to deteriorate," said Stephen Barrett, global chair, KPMG's corporate finance practice."We had hoped that the gradual decline seen earlier this year could be maintained but now all indicators are pointing at a marked fall in the market, across all regions and sectors.''
Forming a comparative view between the Global and Indian M&A scene, Rohit Kapur, Corporate Finance Head, KPMG India shared his observation saying, ''Despite the global slowdown in deal activity, India is still seeing a steady flow of transactions, however the sentiment is changing from aggressive growth initiatives to consolidation and rationalisation of business strategies''.
Commenting on the findings by the KPMG Global M&A predictor, Barrett says, ''Last year we correctly called the top of the global M&A market, with a gradual plateau in activity offset by continued growth in Asia Pacific. Now, however, our latest forward-looking statistics suggest that the next 12 months will become increasingly difficult for transactions right across the globe.
"Although six months ago forward PE ratios in Europe and the US were down marginally, the Asia Pacific region saw ratios move forward strongly from 17.0x to 19.0x. This time, all regions, bar Latin America (which has risen by 6.3 per cent), have shown a fall in their respective forward PE ratios with the most rapid fall being for Africa / Middle East (down 13.9 per cent), followed by Europe (down 12.3 per cent), Asia Pacific (down 10.7 per cent) and North America (down 8.7 per cent). At the same time, whilst balance sheet capacity remains robust, the Predictor is showing deterioration in net debt to EBITDA ratios across the board.''
KPMG global M&A Predictor analysis
The latest Predictor - a forward looking index of 1,000 leading companies' estimated net debt to EBITDA ratios and forward Price Earnings ratios - sees the largest fall in global forward PE ratios recorded to date. This decrease in corporate valuations (down globally 10.3 per cent from 17.0x to 15.3x in the six months to the end of May 2008), in KPMG's view, indicates a lessening appetite to execute deals. In addition, net debt to EBITDA ratios have moved from 0.81 times to 0.93 times - indicating that the capacity to drive deals through debt may soon be negatively impacted and deteriorate.
