KPMG International's 2018 M&A Predictor report is calling for another robust year of global M&A deal-making in 2018, with predicted appetite and capacity for deals both expected to increase by 5 percent and 17 percent, respectively. This compares well with 2017, when predicted appetite was relatively flat at 1 percent.
This year is certainly off to an encouraging start and continues what was a strong Q4 in 2017, with M&A deals in the first quarter of 2018 soaring just past US$1 trillion - a healthy jump from US$749 billion in the first quarter of 2017. Average deal value in the first quarter of this year was also up significantly, rising about 42 percent to a 10-year high of US$124 million and returning above the US$100 million mark seen in 2015-2016.
“The demand for good assets and companies remains very high, against a backdrop of favorable capital markets and low interest rates. Whether it's large corporates with significant cash on their balance sheets, or growing sums of private-equity money seeking transactions, M&A players are active and bidding up valuations,” says Philip Isom, Global Head of M&A, KPMG International. “The abundance of private equity `dry powder' sitting idly on the sidelines cannot persist indefinitely.”
KPMG International's M&A Predictor is a forward-looking tool that helps member firm clients forecast worldwide trends in mergers and acquisitions. Data looks at cross-regional, cross-border and cross-sector deal flows, combined with sector specialists, to provide a more in-depth analysis of the next 12 months.
Cross-border deals changed little in 2017 compared with 2016, with more than 9,000 deals and more than US$1 trillion in overall deal value.
“Despite all the noise on the global geopolitical front, cross-border dealmaking, particularly in the middle-market, was largely unaffected,” says Leif Zierz, Global Head of Deal Advisory, KPMG International. “Combine this with the ever-increasing pressure to rapidly transform and innovate and we see a strong market in 2018, especially in tech-related deals, which continues to take a larger piece of the sector convergence pie.”
In 2017, sector convergence into technology reached a 10-year high of US$144 billion in deal value. Every sector has hit a 10-year high in cross-sector deal volume into the technology sector over the last 3 years, as the hunt for innovative technologies and digital capabilities continues unabated. Industrial manufacturers have been the keenest buyers of technology companies, more than doubling the value of deals into the sector in 2017 vs 2016.
KPMG International's M&A Predictor looks at the appetite and capacity for M&A deals by tracking and projecting important indicators 12 months forward, including P/E (price/earnings) ratios, a good guide to the overall market confidence, and net debt to EBITDA (earnings before interest, tax, depreciation and amortization) ratios, to gauge the capacity of companies to fund future acquisitions. The Predictor covers the world by sector and region and is produced using data comprising 2,000 of the largest companies in the world by market capitalization. All raw deal data is sourced from CapitalIQ and Dealogic, with further analysis provided by KPMG. Dealogic data is used to provide historical deal trends in order to compare the predictions with actual results.
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