KPMG Corporate Finance's Global M&A Predictor forecasts that 2009 will see a continued fall in global mergers and acquisitions (M&A) but that deal activity should slowly return late in the year as liquidity improves and attractive value is recognised in certain sectors.
KPMG Corporate Finance’s Global M&A Predictor forecasts that 2009 will see a continued fall in global M&A activity but that volumes should slowly return late in the year as liquidity improves and attractive value is recognized in certain sectors.
The latest Predictor — a forward looking survey of 1,000 leading companies’ estimated net debt to EBITDA ratios and prospective Price Earnings ratios — reveals a significant fall in 12-month forward corporate valuations and therefore appetite to do deals (down globally 22.2 percent, from 15.3x end May 2008 to 11.9x at the end of November 2008). Forecast Net debt to EBITDA ratios have moved from 0.93 times to 1.06 times, a 13.5 percent deterioration, signaling a decreasing capacity to do deals.
Stephen Barrett, Corporate Finance international chairman at KPMG, commented: “Findings from our latest Predictor confirm our view that 2009 will be a very subdued year for M&A activity. We expect global deal volumes to continue to fall through to Q3 and, with less liquidity in the market and reduced debt market liquidity, appetite and capacity for doing deals will continue to decline…… However, our detailed analysis of the results of KPMG’s Predictor, coupled with historic M&A cycle trends, leads us to believe that there are indications that the corner may well be turned late in the second half of this year.”
Regional forecast
For the first time, the Predictor indicates a declining valuation trend in all regions of the world demonstrating the global decline in M&A activity. As last time, the region which had the biggest drop in valuation was Africa and Middle East (PEs down 31.6 percent from 13.3x to 9.1x). Latin America had the second largest fall (28.7 percent from 16.1x to 11.5x) followed by North America (24.6 percent down from 15.9x to 12.0). In contrast to the last Predictor in which Europe experienced the second largest fall, six months on, Europe saw the second smallest fall (21 percent from 13.5x to 10.7x) behind Asia Pacific down 19.9 percent from 17.0x to 13.6x.
