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M&A Appetite On The Up, But Completed Deals Slide

Significant strength in the Chinese and Latin American regions despite recent market events.

  • Modest 11 percent rise in predicted forward P/E ratios and 7 percent increase in capacity to transact to June 2016
  • Divergence of expectations between developing and developed markets

Despite the recent turbulence in the markets, analysts expect the world’s largest businesses to show an increasing appetite for M&A transactions over the next 12 months, while at the same time enjoying more capacity to fund deals, according to the latest edition of KPMG International’s Global M&A Predictor.

Between June 2015 and June 2016, forward P/E ratios (our measure of corporate appetite or confidence) are forecast to increase by 11 percent, while Net debt to EDITDA (our measure of capacity) is predicted to rise by 7 percent over the same period.

But this encouraging data does not yet appear to be reflected in actual transaction levels. Both completed deal volumes and completed deal values fell significantly over the six-month period between January and June 2015.

“There has been a pause in the market,” commented Leif Zierz, KPMG International’s Global Head of Deal Advisory. “The continuing impact of low oil prices, market and political instabilities in some key regions should also not be overlooked. On an individualized basis, we continue to see relatively strong expectation despite a drop in earnings. When we look at the top line numbers, they look unexceptional. There are actually some pockets of strength and opportunities to be found.”


There are some significant regional variations in the expected rise in global corporate appetite for M&A transactions, as political and market uncertainties continue to take a toll in key markets.

China enjoys a huge 71 percent increase in forward P/E ratios between June 2015 and June 2016, accompanied by a 15 percent rise in capacity. Although the China forecasts were made before the recent stock market corrections, they suggest a strong underlying confidence in future M&A opportunities.

“There continues to be a robust M&A market, and significant appetite for China by investors. The fluctuations have created plenty of opportunities for investors and sellers alike to consider the options,” commented Jeffrey Wong, Head of Deal Advisory in China for KPMG.

Compared to the global average of 11 percent, for example, the predicted increase in appetite in North America and Europe, at 7 percent and 8 percent respectively, is below par, possibly hampered by wider issues such as the continuing squeeze on oil prices and political instabilities in the Eurozone. While the capacity to transact, as indicated by Net debt to EBITDA ratios, is expected to be similarly variable, while retaining a broadly upward trend, as corporates reduce their debts and retain cash.

The contrast can best be seen in the Eurozone, where Germany and Switzerland were able to increase capacity to transact by reducing debt, while France and the UK declined marginally as debt and EBITA barely budged.

In the UK, for example, expectations are in line with the Eurozone at 13 percent, but appetite saw a modest 7 percent drop. Nonetheless, Andrew Nicholson, Head of M&A in the UK for KPMG, comments: “With the debt markets more accessible than they have been for some time, our view is that the capacity for deals by UK corporates is actually showing little sign of diminishing. Couple this with increasing buoyancy, a more stable economy and a greater convergence between vendor and purchaser price expectations, and all the signs are there that UK deal volumes will likely increase steadily over the coming months.”

Expectations are brighter for Africa and the Middle East, Latin America and Asia Pacific, which are all expected to see above-average increases in M&A appetite. In particular, expectations are high in Latin America and Asia at 26 and 25 percent respectively.

“The long-term scenario looks promising for the ASPAC region, helped by political stability and the establishment of the ASEAN Economic Community. More specifically, there has been a growing interest of Asian PE firms in Southeast Asia countries,” said Bob Yap, ASPAC Head of Deal Advisory for KPMG.

In Latin America, expectations are still high (26 percent) despite the significant market forces. ”Corporates and global investors are digesting the impacts of Brazil’s struggling economy and the ongoing fallout of the Petrobras scandal; but we still expect things to pick up as people adjust to the new reality,” said Matthew Tedford, Americas Head of Deal Advisory for KPMG.


The challenges in the global energy market that are potentially hampering M&A appetite in some markets are clearly in evidence in the 19 percent fall in market capitalizations of the largest corporates in the energy sector between June 2014 and June 2015. Profits are also down considerably over the same 12-month period.

Conversely, the healthcare sector looks more stable, with an 18 percent increase in market capitalizations and a 7 percent rise in appetite for M&A. Telecommunications is also looking strong, with an 8 percent increase in appetite.

“With oil prices continuing to experience new multi-year lows and credit tightening in the sector, we expect opportunistic buying, forced selling and the resetting of capital structures.

If global supply and demand forces stabilize, healthy deal activity may pick up,” comments Phil Isom, Global Head of M&A.


KPMG’s Deal Advisory practice comprises M&A, debt advisory, valuations, transaction services, strategy and restructuring services.


KPMG’s Global M&A Predictor, is a forward-looking tool that helps member firm 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 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 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 S&P Capital IQ. Where possible, earnings and EBITDA data is on a pre-exceptionals basis with the exception of Japan, for which GAAP has been used.


Amy Greenshields,

KPMG International

+1 416 777 8749

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