Global M&A transactions lost some ground during 2017 when compared with 2016's activity but we expect deal-making to regain some momentum in 2018. Based on M&A Predictor data, we anticipate an upward trend this year - and the first quarter of 2018 might offer a glimpse of what's ahead, as total M&A deal value increased while average deal value soared to a 10-year high.
As we stressed in last year's report and emphasize again this year, it's no surprise that the upward trend we are seeing in cross-sector deal-making continues. The hunt for innovation is robust as companies - including mid-market and private-equity players - increasingly pursue transformational technologies and game-changing digital capabilities deemed critical to their future competitiveness.
Strategic investment strategies will help CEOs and their organizations embrace disruption and pursue transformation as an opportunity. Companies can help minimize disruption and hedge their bets on what future business models will look like by investing in strategic partnerships and corporate venturing. In addition, divestments will become a more- significant part of the transformation agenda, requiring the same strategic insights as the acquisition process.
While we can expect talk and threats of protectionism to continue among markets, prompting some to remain closer to home on potential deals, it's abundantly clear that traversing current geographies and competencies is now critical to driving change and growth. Taking a `wait-and-see' approach and delaying strategic action amid today's volatile environment of disruption will be risky at best.
Deal activity was not significantly hindered by geopolitical issues in 2017 and, barring any disruptive surprises, we expect 2018 to unfold as indicated by M&A Predictor data. We are optimistic enough to cautiously suggest 2018 could indeed outperform those numbers.
We look forward to navigating an exciting M&A global landscape in 2018 and will continue to help our clients successfully balance opportunities and risk amid today's rapidly changing environment.
KPMG International’s M&A Predictor is a forward-looking report that helps member firm clients to forecast worldwide trends in mergers and acquisitions. KPMG’s Predictor tool is supplemented with insights from KPMG’s integrated network of global sector specialists, examining global trends across a wide spectrum of deal types: domestic, region to region, cross-border and cross-sector.
The Predictor was established in 2007. It looks at the appetite and capacity for M&A deals by tracking and projecting important indicators 12 months forward. The rise or fall of forward P/E (price/earnings) ratios offers a good guide to the overall market confidence, while net debt to EBITDA (earnings before interest, tax, depreciation and amortization) ratios helps gauge the capacity of companies to fund future acquisitions. The Predictor covers the world by sector and region. It is produced using data comprising 2,000 of the largest companies in the world by market capitalization.* All the raw data within the Predictor is sourced from S&P Capital IQ.
Historical trend analysis leverages raw data from Dealogic and combines with KPMG analysis. Unless otherwise stated, all deal data is sourced from Dealogic, as of March 31, 2018.
Entities considered for cross-border deals analysis include Strategic Buyers, Financial Sponsors, Government Institutions, and Sovereign Wealth Funds. All cross-border deals involving China and Hong Kong/British Virgin Islands/Cayman Islands are treated as domestic Chinese transactions.
Cross-sector transactions are considered where there is a strategic buyer of an asset where the General Industry Group does not match that of the target. Furthermore, KPMG analysis excludes deals that do not reflect a “cross sector convergence” intent, such as restructuring or private equity for example.
Changes from 2017 M&A Predictor to the 2018 M&A Predictor
To better reflect the sub-sectors represented in two particular “economic sectors” represented in CapitalIQ, we have renamed these sectors in 2018 as follows:
*The financial services and property sectors are excluded from our Predictor analysis, as net debt/EBITDA ratios are not considered relevant in these industries. Where possible, earnings and EBITDA data is on a pre-exceptional basis with the exception of Japan, for which GAAP has been used.