M&A Predictor - September 2015

M&A Predictor - September 2015

KPMG’s M&A Predictor looks at the appetite and capacity for M&A deals by tracking and projecting important indicators 12 months forward. This issue demonstrates that appetite and capacity for M&A transactions among the world’s largest corporates is expected to increase over the next 12 months, according to latest analysts’ forecasts.

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Confidence and capacity continue to rise

Analysts expect predicted forward P/E ratios (our measure of corporateappetite or confidence) to increase by 11 percent between June 2015 and June2016. Over the same period, the capacity to transact is expected to rise by 7percent, as debts continue to be paid down and cash reserves increased.

Stark differences between key markets

There are some significant regional variations in the expected rise inglobal corporate appetite for M&A transactions, as political and marketuncertainties continue to take a toll in key markets. China is predicted to seea huge 71 percent increase in forward P/E ratios between June 2015 and June2016, accompanied by a 15 percent rise in capacity. Compared to the globalaverage of 11 percent for example, the predicted increase in appetite in NorthAmerica and Europe, at 7 percent and 8 percent respectively, is below par,possibly hampered by wider issues such as the continuing squeeze on oil prices and political instabilities in the Eurozone.  This contrast can best be seen in the Eurozone, where Germany and Switzerland were able to increase capacity to transact by reducing debt, while France and the UK declined marginally as debt and EBITDA barely budged.

Sectors expectations

The tough times that continue to affect the global energy market are evident in the 19 percent fall in market capitalizations of the largest corporates in this sector, from US$4.8 billion in June 2014 to US$3.9 billion in June 2015. Profits are also down considerably, registering a 37 percent decline over the same 12 month period. These figures are perhaps not surprising, given that it is corporates in the energy sector that are likely to be the hardest hit by the low oil prices that appear to be affecting corporate activity right across the global market. 

Conversely, healthcare looks more stable, with an 18 percent increase in market capitalizations and a 10 percent increase in profits, reflected in a 7 percent rise in appetite for M&A. Telecommunications is looking strong, with an 8 percent increase in appetite, although capacity is only expected to rise by 5 percent. 

Completed deal volumes tailing off

Despite the expected rise in confidence, and following a sustained surge in completed deal volumes and values over the latter half of last year, the most recent set of deals data presents a mixed picture. While growth was maintained over the first two months of the year, between February and June 2015 there was a significant fall off in global deal volumes and values. The volume of completed deals fell by 8 percent, while the value of deals saw a 30 percent reduction.

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