The merger & acquisition (M&A) deal counter is expected to be much better this year with rising confidence of world’s large corporate houses to expand as compared to 2013, as per KPMG International’s latest M&A Predictor.
The report based its projections on higher predicted forward price to earnings or PE ratios accompanied by lower net debt to EBITDA ratio, providing more headroom for firms to expand.
In December 2013, predicted forward PE ratios — a measure of confidence or appetite — were up 16 per cent from the year ago period and an increase of 17 per cent since June, mainly on the back of rise in shares prices with market capitalisation going up to over 19 per cent on a year-on-year basis.
Healthcare industry tops the list with predicted forward PE ratios for companies growing 24 per cent over the year, followed by industrials (23 per cent) and technology (22 per cent). In terms of capacity also, healthcare sector leads with a predicted rise in expansion capacity of 45 per cent over the year, as measured by the forecast net debt to EBITDA ratios.
“Investors have been patient over the last three or four years; but as deal capacity continues to rise and global markets maintain some stability, the pressure on cash-rich corporates to start deal-making again is going to intensify,” Tom Franks, Global Head of Corporate Finance at KPMG International and a partner with the UK firm, said in a statement.
Global M&A dealflow continued to be negative in 2013 both in terms of volumes and value of transactions. This could well change with Verizon and Vodafone getting their shareholders to sew the third largest M&A ever worth $130 billion, among other deals.
Talking about prospects for India, Ashok Mittal, Head-Corporate Finance, KPMG in India, said, “A slowing domestic economy, high interest rate environment, lack of progress on much needed reforms and a volatile Indian rupee resulted in a depressed M&A sentiment. Having said that, we are beginning to see more traction and interest in the last quarter and expect that 2014 will be a much better year.”
“The Indian economy is showing signs of bottoming out in terms of growth and that, with increased stability in the global economy, will drive up M&A sentiment,” he added.
Mittal said that with respect to PE investments, the IPO market remains uncertain but secondaries will continue.
We are also seeing an increasing trend of buyout transactions especially in industries where there is good professional talent available such as consumer, pharma and technology, he said.
KPMG’s M&A Predictor is produced twice a year, using data comprising the world’s 1000 largest listed companies by market capitalisation.