KPMG predicts decline in M&A activity in US & Europe, but sees confidence in Asia Pacific markets

After calling the top of the M&A market six months ago, the latest version of KPMG’s Global M&A Predictor provides further evidence that M&A activity has now plateaued and is in decline in some areas.

The Predictor suggests that 2008 deal levels may just about hold steady compared to 2007 but deal values will fall away. However, with corporate balance sheets generally looking strong, the capacity for ‘intelligent’ deals to be struck does still remain.

The latest Predictor - a forward looking index of 1,000 leading companies’ net debt to EBITDA ratios and Price Earnings ratios shows that global forward PE ratios have now dropped from 17.1x to 17.0x; confirming the plateau period which KPMG expects to characterise M&A activity in 2008..-

Stephen Barrett, International Chairman of Corporate Finance at KPMG, commented: “There was no satisfaction in accurately forecasting the top of the market six months ago. However, if there is some consolation to be taken, it is in the fact that also as predicted - any slowdown will be a fairly gentle, gradual one. There are definite winners and losers though; look closely and you see that the forward PE ratios are down 0.7 and 0.5 in Europe and the US respectively. It is mainly the AsPac region where forward ratios moved forward strongly from 17.0 to 19.0 which is bolstering the overall numbers. This leaves us with a real mixed outlook. Where there is appetite and confidence, there are constraints such as a lack of funds or suitable targets. Where there is cash, there is nervousness, caution and a slight loss of appetite”