Year 2014 may see more global M&A deals: KPMG

Moneycontrol Bureau

The world's largest companies, including Indian firms are expected to show a greater appetite for merger and acquisitions (M&A) in 2014 than they did the previous year, says a KPMG report.

According to KPMG International's latest Global M&A Predictor, the predicted forward P/E (price to earnings) ratios, a measure of confidence, were 16 percent higher in December 2013 than they were a year ago.

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Besides a confidence build-up, analysts are also expecting corporates to have more capacity to undertake transactions during 2014 than previously.

"The growing appetite for deals and an increase in pressure to transact are two sides of the same coin," said Tom Franks, Global Head of Corporate Finance at KPMG International and a partner with the UK firm, in the report.

"Investors have been patient over the last three or four years; but as deal capacity continues to rise and global markets maintain some stability, the pressure on cash-rich corporates to start deal-making again is going to intensify," he said.

With regard to M&A and private equity trends in India for 2014, Ashok Mittal, Head-Corporate Finance, KPMG in India, said: "We are beginning to see more traction and interest in the last quarter and expect that 2014 will be a much better year."

Mittal said that the Indian economy is showing signs of bottoming out in terms of growth and that, with increased stability in the global economy, will drive up the M&A sentiment.

The healthcare sector will continue to see more deals. According to the study, the predicted forward P/E ratios for Healthcare companies rose 24 percent over the year, followed by Industrials (23 percent) and Technology (22 percent).In terms of capacity, Healthcare again leads the way with a predicted rise in capacity of 45 percent over the next 12 months, as measured by the forecast net debt to EBITDA ratios.

Although the overall market sentiment is positive, the transaction levels are still to catch up. According to the study, from 30,945 deals in January 2013, the total number of completed deals fell to 27,194 in December, a drop of over 12 percent. Deal values also declined, falling around 7 percent over the same period.

"Steadily increasing corporate confidence is still not being reflected in global transaction levels, and deal markets are continuing to struggle. However, this is against a background of a red hot IPO market in the UK and the US, and it will be interesting to see how the M&A situation changes during 2014," said Franks.