Investors are starting to increase M&A pressure after years of inactivity, says KPMG
According to KPMG, predicted forward P/E ratios, a measure of confidence or appetite, were 16 per cent higher in December 2013 than they were 12 months earlier, with an increase of 17 per cent since June.
The rise in confidence was mirrored by an increase in share prices, with market capitalisations up 19 per cent over the year. However, the growing confidence is not reflected in transaction volumes or values, which continue to struggle.
Analysts expect the world’s largest corporates to show a greater appetite for mergers and acquisitions (M&A) transactions in 2014 than they did last year, according to KPMG International’s latest Global M&A Predictor.
As well as an increase in confidence, analysts also expect corporates to have more capacity to undertake transactions during 2014 than previously, due to falling net debt to EBITDA ratios. These are expected to decline by 12 per cent over the next 12 months, giving corporates more financial headroom for deal making.
The US Federal Reserve’s end-of-year tapering of quantitative easing could have a temporary dampening effect, but overall the combination of growing capacity and rising confidence suggests a potential rise in transaction levels in 2014, as restless investors start to turn up the M&A pressure after several years of inactivity.
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KPMG’s M&A Predictor is a forward-looking tool that helps member firm clients to forecast worldwide trends in mergers and acquisitions.