Asia-Pacific remains one of the most active M&A markets however deal volumes have declined while values have risen, according to the latest Global M&A Predictor report from KPMG.
The survey finds that China's forward P/E (price/earnings) ratios have dropped from 14.3 to 12.6 over the last six months, while Hong Kong also noted a fall from 13.8 to 12.5. These declines indicate a fall in future sentiment about growth prospects from 6 months ago, though P/E ratios still remain marginally ahead of mid-2010.
Jeremy Fearnley, Head of M&A, KPMG in Hong Kong, said: "Declining P/E levels reflect the general uncertainty in the global financial markets as the West seeks to avoid national credit default, stabilise the banking sector and maintain its fragile economic recovery. At the same time, the impact of China's cooling measures is tempering companies' valuations in the domestic markets. On a positive note, however, the continued deleveraging of companies' balance sheets is creating a significant war chest and we expect these to be put to use over the coming 12 months."
"Our previous research has shown that in terms of value creation for ASPAC deals, there is a trend of deals delivering value where they are done to expand into new geographical regions. This factor, combined with the relatively lower valuations and growing financial capacity, should be a positive influence on cross-border deal activity in the region," he added.
On a global sector basis, whilst most sectors have seen their valuations decline (from a P/E standpoint), the two to buck the trend have been healthcare and basic materials. Continued demand for scarce resources is expected to drive deal volumes.
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About KPMG's M&A Predictor:
KPMG's M&A Predictor, established in 2007, is a forward looking tool that enables clients to forecast worldwide trends in mergers and acquisitions. The Predictor looks at the appetite and capacity for M&A deals by tracking and projecting important indicators twelve months forward.
The rise or fall of forward P/E (price/earnings) ratios offer a good guide to overall market confidence, while net debt to EBITDA (earnings before interest, tax, depreciation and amortization) ratios help gauge the capacity of companies to fund future acquisitions.
The Predictor covers the world by sector and region. It is produced bi-annually, using data comprised from 1,000 of the largest companies in the world by market capitalization.
The financial services and property sectors are excluded from our analysis, as net debt/EBITDA ratios are not considered relevant in these industries. All the raw data within the Predictor is sourced from Capital IQ.
KPMG China has 13 offices (including KPMG Advisory (China) Limited) in Beijing, Shanghai, Shenyang, Nanjing, Hangzhou, Fuzhou, Xiamen, Qingdao, Guangzhou, Shenzhen, Chengdu, Hong Kong and Macau, with around 9,000 professionals.
KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 150 countries and have 138,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.