- Confidence 14 percent higher than June 2012 but static since the start of the year
- Healthcare, consumer discretionary and industrial sectors show highest confidence year-on-year
- Capacity to transact expected to rise 13 percent, with healthcare and technology sectors anticipated to increase the most.
KPMG International's latest Global M&A Predictor shows that deal appetite among the world's largest corporates is higher than it was 12 months ago, with forward P/E ratios – a measure of confidence, or appetite – up 14 percent from June 2012.
In the shorter term however, uncertainty over macroeconomic factors such as quantitative easing continues to hamper confidence, and forward P/E ratios over the past six months have retuned to levels seen at the start of the calendar year.
Despite the apparent fragility in appetite, the capacity to transact – as measured by forecast net debt to EBITDA ratios – is set to continue improving, with an expected reduction of 13 percent in global net debt to EBITDA ratios over the coming year. Africa, in particular, is expected to see capacity improve by 34 percent by next year.
"Despite several years of forecast growth in capacity, the market is clearly still affected by macroeconomic factors which are driving down M&A volumes," said Tom Franks, Global Head of Corporate Finance at KPMG and a partner with KPMG in the UK firm. "This imbalance is likely to lead to continuing tensions between companies and their investors over how to use ‘surplus’ cash."
Among the brightest spots in the data is Japan with a 24 percent year-on-year increase in appetite and an expected 8 percent increase in capacity. Similarly, the US continues to outperform the market even in tough times. Forward P/E ratios are 4 percent higher than 6 months ago, modest but relatively strong in an uncertain market, and 14 percent up year-on-year.The US’s capacity to transact is also robust, with an expected improvement of 20 percent over the next year.
Global deal volumes fell by almost 10 percent between June 2012 and June 2013, with the Asia-Pacific (AsPac) and Africa and the Middle East regions particularly hard hit. Deal values are equally fragile. After a brief rally at the start of the year, global deal values have fallen back to 2012 year-end levels and seem to be on a declining trend.
"The evidence from the top 1,000 companies is that while confidence is fragile, it is there, and this is reflected in average (as opposed to total) deal values, which continue to increase. Beyond the largest corporates, however, the mid-market and below is continuing to struggle," commented Mr. Franks.
Industry sectors, too, reflect these general market uncertainties, with significant variations in performance between sectors over the past 12 months. Healthcare, Consumer Discretionary and Industrials are the strongest performers, with forward P/E ratios up 20, 20 and 21 percent respectively since June 2012. But again, over 6 months the figures are weaker. Healthcare is the strongest, with a 9 percent increase since December 2012. Consumer Staples and Telecommunications are the only other sectors to show an increase, at 1 percent and 3 percent respectively. In contrast, Basic Materials has seen a 16 percent decrease in confidence over the past 6 months.
In terms of capacity, Healthcare is again a strong performer, with capacity expected to increase by 54 percent. Technology, too, looks to be in a good position, with a predicted 29 percent increase in capacity over the next 12 months.