KPMG M&A Pre­dic­tor re­port an­tic­i­pates a ro­bust year of global deal-mak­ing

The Malta Business Weekly - - FRONT PAGE -

Geopo­lit­i­cal con­cerns make a min­i­mal dent on cross-bor­der deals in 2017; re­bound al­ready un­der­way in 2018 amid strong mid-mar­ket deals

Sec­tor con­ver­gence into the tech in­dus­try hits a 10-year high as more com­pa­nies join the race for in­no­va­tion.

KPMG In­ter­na­tional’s 2018 M&A Pre­dic­tor re­port is call­ing for another ro­bust year of global mergers and ac­qui­si­tions, with pre­dicted ap­petite and ca­pac­ity for deals both ex­pected to in­crease by 5% and 17%, re­spec­tively. This com­pares well with 2017, when pre­dicted ap­petite was rel­a­tively flat at 1%.

This year is cer­tainly off to an en­cour­ag­ing start and con­tin­ues what was a strong Q4 in 2017, with global M&A deals in the first quar­ter of 2018 soar­ing just past $1 tril­lion – a healthy jump from $749bn in the first quar­ter of 2017. Av­er­age deal value in the first quar­ter of this year was also up sig­nif­i­cantly, ris­ing about 42% to a 10year high of $124m and re­turn­ing above the $100m mark seen in 2015-2016.

“The de­mand for good as­sets and com­pa­nies re­mains very high, against a back­drop of favourable cap­i­tal mar­kets and low in­ter­est rates. Whether it’s large cor­po­rates with sig­nif­i­cant cash on their bal­ance sheets or grow­ing sums of pri­vate-eq­uity money seek­ing trans­ac­tions, M&A play­ers are ac­tive and bid­ding up val­u­a­tions,” says Philip Isom, Global head of M&A, KPMG In­ter­na­tional. “The abun­dance of pri­vate eq­uity ‘ dry pow­der’ sit­ting idly on the side­lines can­not per­sist in­def­i­nitely.”

“This out­look may well be mir­rored lo­cally where ap­petite for M&A deal-mak­ing con­tin­ues,” says David Pace, KPMG in Malta’s M&A lead. “The buyer uni­verse con­tin­ues to be char­ac­terised by ac­tiv­ity from both cor­po­rates and pri­vate eq­uity. Mal­tese cor­po­rates are fol­low­ing ei­ther con­sol­i­da­tion or di­ver­si­fi­ca­tion strate­gies or in­deed a com­bi­na­tion of both, while pri­vate eq­uity is par­tic­u­larly ac­tive in the tech­nol­ogy space. Mean­while size­able at­trac­tive as­sets are com­ing to mar­ket which could spur cross­bor­der ac­tiv­ity.”

KPMG In­ter­na­tional’s M&A Pre­dic­tor is a for­ward-look­ing tool that helps mem­ber firm clients fore­cast world­wide trends in mergers and ac­qui­si­tions. Data looks at cross­re­gional, cross-bor­der and cross­sec­tor deal flows, com­bined with sec­tor spe­cial­ists, to pro­vide a more in-depth anal­y­sis of the next 12 months.

More sec­tors join drive for tech­nol­ogy

Cross-bor­der deals changed lit­tle in 2017 com­pared with 2016, with more than 9,000 deals and more than $1 tril­lion in over­all deal value.

“De­spite all the noise on the global geopo­lit­i­cal front, cross-bor­der deal­mak­ing, par­tic­u­larly in the mid­dle-mar­ket, was largely un­af­fected,” says Leif Zierz, Global head of Deal Ad­vi­sory, KPMG In­ter­na­tional. “Com­bine this with the ever- in­creas­ing pres­sure to rapidly trans­form and in­no­vate and we see a strong mar­ket in 2018, es­pe­cially in tech-re­lated deals, which con­tin­ues to take a larger piece of the sec­tor con­ver­gence pie.”

In 2017, sec­tor con­ver­gence into tech­nol­ogy reached a 10-year high of $144bn in deal value. Ev­ery sec­tor has hit a 10-year high in cross­sec­tor deal vol­ume into the tech­nol­ogy sec­tor over the last three years, as the hunt for in­no­va­tive tech­nolo­gies and digital ca­pa­bil­i­ties con­tin­ues un­abated. In­dus­trial man­u­fac­tur­ers have been the keen­est buy­ers of tech­nol­ogy com­pa­nies, more than dou­bling the value of deals into the sec­tor in 2017 vs 2016.

KPMG In­ter­na­tional’s M&A Pre­dic­tor looks at the ap­petite and ca­pac­ity for M&A deals by track­ing and pro­ject­ing im­por­tant in­di­ca­tors 12 months for­ward, in­clud­ing P/E (price/earn­ings) ra­tios, a good guide to the over­all mar­ket con­fi­dence and net debt to EBITDA (earn­ings be­fore in­ter­est, tax, de­pre­ci­a­tion and amor­ti­za­tion) ra­tios, to gauge the ca­pac­ity of com­pa­nies to fund fu­ture ac­qui­si­tions.

The Pre­dic­tor cov­ers the world by sec­tor and re­gion and is pro­duced us­ing data com­pris­ing 2,000 of the largest com­pa­nies in the world by mar­ket cap­i­tal­iza­tion. All raw deal data is sourced from Cap­i­talIQ and Dealogic, with fur­ther anal­y­sis pro­vided by KPMG. Dealogic data is used to pro­vide his­tor­i­cal deal trends in or­der to com­pare the pre­dic­tions with ac­tual re­sults.

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