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

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.