Attractive values and improved liquidity will resurrect global M&A in late 2009, KPMG survey predicts

BVWireIssue #77-3
February 18, 2009

The Global M&A Predictor from KPMG Corporate Finance forecasts that the remainder of 2009 will see a continued fall in global mergers and acquisitions (M&A). The good news: This same survey also suggests that deal activity should slowly return late in the year as liquidity improves and investors recognize attractive value in certain sectors. KPMG’s findings—based on a forward looking survey of 1,000 leading companies’ estimated net debt to EBITDA ratios and prospective Price Earnings ratios (PEs)—reveal a significant fall in 12-month forward corporate valuations and therefore appetites to do deals (down globally 22.2% from 15.3x end May 2008 to 11.9x t the end of November 2008). Forecast Net Debt to EBITDA ratios have moved from 0.93 times to 1.06 times (a 13.5% deterioration) indicating a decreasing capacity to do deals.

A global perspective: the Predictor indicates a declining valuation trend in all regions of the world, a result of the global decline in M&A activity. Africa and the Middle East saw the largest drop in valuation; PEs went down 31.6% from 13.3x to 9.1x. Latin America had the second largest fall (28.7% from 16.1x to 11.5x), followed by North America (24.6% down from 15.9x to 12.0x). In contrast to the last Predictor in which Europe experienced the second largest fall, six months into this study period, Europe saw the second smallest fall (21% from 13.5x to 10.7x) behind Asia Pacific down 19.9% from 17.0x to 13.6x.

Although the capacity to do deals has decreased with the global forecast Net Debt to EBITDA ratios moving from 0.93x to 1.06x, some regions have seen an improvement in their balance sheets. Latin America, Africa, and the Middle East bucked the trend and all saw improvements of 3.2% and 35.7%, respectively, with Africa and the Middle East ratio of 0.33x the most modest of all. Europe maintains its position as having the highest regional ratio of 1.15x, having moved from 0.97x, a deterioration of 19.0%. The ratio that saw the greatest decline was Asia Pacific at 28.1%, now standing at 1.14x. North America saw the smallest decline from 0.94x to 0.95x.

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