The recently published September 2015 M&A Predictor put out by KPMG uses important indices and projections to predict the global appetite for M&A in the upcoming year. Forward P/E ratios are used by KPMG as a guide for overall market confidence and net debt to EBITDA ratios are used to indicate the future acquisition capability of companies. Using these metrics, analysts predicted that the global appetite for M&A among the world’s largest companies would increase over the next twelve months, with forward P/E ratios expected to increase by 11% between June 2015 and June 2016 and companies’ capacity to transact increasing by 7% during that same period.
M&A Predictions for North America
Although M&A appetite is increasing in North America, the North American market is not predicated to be as hungry as the global average, with forecasted growth in forward P/E ratios in the North American region predicted to grow at 7% and with companies’ capacity to transact increasing by 5%.
Despite the positive trend in global M&A appetite, KPMG reports that completed deal value and volume decreased in the first half of 2015. Between January and June 2015, there was a 6% decline in completed deal volumes while the volume of announced deals remained relatively steady.
As stated in the M&A Predictor, the continuing impact of low oil prices should not be overlooked. The global energy market has been hit hard over the past year, as evidenced by the 19% fall in market capitalizations in the world’s largest energy corporations.
M&A Predictions for Canada
KPMG predicts that Canadian companies’ eyes may be bigger than their stomachs when it comes to their appetite for M&A over the next year as forward P/E ratios for the largest Canadian companies are expected to increase by 13% between June 2015 and June 2016 but their capacity to transact is expected to decrease by 17% during that same period.