The latest issue of KPMG International’s Global M&A Predictor is now out.
KPMG International’s latest Global M&A Predictor shows that forward price/earnings (PE) ratios have risen by 12 percent over the last year, indicating an increased appetite for making deals. However, these figures are tempered by a fall over the last six months. A cause for optimism is the growing M&A capacity, as evidenced by the downward trend in net debt/EBITDA ratios, projected to fall by 26 percent by June 2012. These lower debt levels should put prospective corporate buyers in a stronger position to fund any potentially attractive deals.
Shawn McCarthy, Partner of M&A Group, KPMG in Russia and CIS comments: “Although external financial markets have weighed heavily on investor confidence, M&A activity in Russia has been buoyed by high levels of domestic transactions and the emergence of Russian corporates as active participants in international sale processes involving natural resources or larger manufacturing businesses. Deal volume (the number of deals) in the second quarter was largely consistent with the first quarter of 2011. As indicated in the recent M&A Predictor survey, Russian companies included in the sample have generated positive growth in terms of net profit of 45% over the last 12 months, while projecting a 26% decrease of net debt in the next 12 months. Although this suggests a relatively higher capacity to borrow money to fund M&A deals, declining P/E ratios against a backdrop of improving profitability underscores the fragility in the market. Although the Russian corporates carry comparatively lower debt levels then there European and BRIC counterparts, a decrease in the confidence of external financial markets may weigh on M&A in the second half of the year.”
On a sector basis, healthcare and utilities both show a growing appetite. Healthcare has the added advantage of having low leverage, so it would be no surprise to see companies in this industry on the acquisition trail. Conversely, utilities is the single most indebted sector, with any new acquisitions likely to be funded by new equity or the disposal of existing assets.
Telecommunications has almost held its own over the past six months and is well up over 12 months so continued activity can be expected, with Consumer Staples just behind. Energy and Basic Materials have both progressed well over 12 months but have each pulled back over six months as caution about the commodity cycle has increased. Nevertheless, the race for limited global resources should mean continued deals in this space.
The Consumer Discretionary (non-essential consumer goods), Industrials and Technology sectors have shown the lowest increases in confidence over the last 12-month period.