KPMG’s M&A Predictor looks at the appetite and capacity for M&A deals by tracking and projecting important indicators 12 months forward. This issue demonstrates that analysts are expecting the world’s largest corporates to maintain the positive momentum for deals in 2016, with both appetite and capacity predicted to increase globally.
After a strong year for M&A in key markets during 2015, the appetite for deals, as indicated by predicted forward P/E ratios (our measure of corporate appetite or confidence) is expected to rise by 4 percent over the next 12 months. Similarly, the capacity of corporates to fund M&A growth, measured by net debt to EBITDA ratios (our measure of capacity) is expected to rise by 13 percent over the same period, as companies continue to pay down debt and bolster their cash reserves.
“We expect companies will continue to pursue transactions and believe that we will see strong activity in many western economies in 2016. Emerging market economies are expected to remain challenging, however,” commented Leif Zierz, Global Head of Deal Advisory
The capacity to transact of the world’s largest corporates is predicted to show even stronger growth than appetite, up 13 percent globally. North America and Europe are both expected to show significant increases in capacity, at 15 percent and 12 percent respectively. Capacity in Asia Pacific (Other) is forecast to be even higher, at 19 percent, as is Africa and the Middle East, at 18 percent. The only two regions expecting a below average growth in capacity are Asia Pacific (Japan) and Latin America, where the figures are 1 percent and 8 percent respectively.
In terms of sectors, the strongest performers in terms of appetite are expected to be: Energy, with a 23 percent increase expected in 2016, Basic Materials at 12 percent and Consumer Staple at 6 percent. There are some significant declines in other sectors, however. Most notably Utilities, where appetite is expected to decrease by 6 percent.
Technology is the star performer for capacity growth, with analysts expecting an increase of 90 percent in 2016, as tech companies continue to increase their cash stockpiles. Appetite is expected to stay the same as 2015 in the Technology sector. Healthcare is predicted to see the second highest rise in capacity, at 30 percent.
The total value of all announced transactions worldwide climbed by 31 percent in value from US$2,828B to US$3,709B. This diverged significantly from the total value of all completed transactions worldwide, which declined by 40 percent during 2015.
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Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.