BY Fraser Tennant
The appetite and capacity for M&A deals among the UK's largest corporates is currently exceeding that seen in the US and Europe, according to the new edition of the KPMG Global M&A Predictor published this week.
The M&A Predictor – a tool that helps member firm clients to forecast worldwide trends in mergers and acquisitions – reveals that, between June 2015 and June 2016, the forward P/E ratios (KPMG’s measure of corporate appetite or confidence) of the UK’s largest corporates are forecast to increase by 13 percent.
In comparison, the P/E ratios for corporates in the US and Europe are forecast to be 6 percent and 8 percent respectively.
“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 showing little sign of diminishing," declares Andrew Nicholson, KPMG’s head of M&A in the UK. “Couple this increasing buoyancy with 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 increase steadily over the coming months.”
However, despite Mr Nicholson’s view that the outlook for M&A in the UK remains bright, the M&A Predictor data also highlights the fact that increasing confidence still does not appear to be reflected in actual transaction levels (completed deal volumes fell in the UK and globally over the six-month period from January to June 2015).
“Globally, it feels like there has been a slight slowdown in the market,” concedes Mr Nicholson. “The continuing impact of low oil prices and political instability in some regions should not be overlooked and, of course, one wonders whether this will be exacerbated by the recent volatility seen in the capital markets. However, we continue to have strong expectations for deal activity in the coming months and there are real pockets of strength to be found.”
In terms of sector expectations, the M&A Predictor confirms the ongoing challenges facing the global energy sector, as evidenced by the 19 percent fall (accompanied by a drop in profits) in market capitalisations of the largest energy companies between June 2014 and June 2015.
Further afield, the M&A Predictor notes that the defensive healthcare sector appears stable (an 18 percent increase in market capitalisation and a 7 percent rise in appetite for M&A) as does telecommunications, with an 8 percent increase in M&A appetite.
Report: M&A Predictor - September 2015