Decline in global deal activity predicted

21 August 2008

The global deal environment is set to deteriorate into H2 2008, claims KPMG's Global M&A Predictor. Further reductions are likely to occur in levels of both deal value and volume, with KPMG's forward-looking corporate valuations down 10 per cent compared to six months ago.

For the first time since it began, KPMG's Predictor shows a decrease in both 'appetite' (forward valuations) and 'capacity' (estimated net debt to EBITDA) for M&A activity. Previous pockets of regional resistance are likely to give way to a broad-based fall in deals across all regions and sectors.

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.

Stephen Barrett, global chair, KPMG's corporate finance practice, commented, ''Findings from our latest Predictor reveal strong evidence that market conditions for M&A transactions will continue to deteriorate. 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.''

''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 U.S. 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.''