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January 12, 2009

Global M&A Activity to Recover in Second Half: KPMG Survey

From the latest KPMG M&A Predictor forecast:
KPMG Corporate Finance’s Global M&A Predictor forecasts that 2009 will see a continued fall in global mergers and acquisitions (M&A) but that deal activity should slowly return late in the year as liquidity improves and attractive value is recognized in certain sectors.

The latest Predictor — a forward looking survey of 1,000 leading companies’ estimated net debt to EBITDA ratios and prospective Price Earnings ratios – reveals a significant fall in 12-month forward corporate valuations and therefore appetite to do deals (down globally 22.2 percent from 15.3x end May 2008 to 11.9x at the end of November 2008). Forecast Net debt to EBITDA ratios have moved from 0.93 times to 1.06 times, a 13.5 percent deterioration, signaling a decreasing capacity to do deals. Stephen Barrett, Corporate Finance International Chairman at KPMG, commented: “Findings from our latest Predictor confirm our view that 2009 will be a very subdued year for M&A activity. We expect global deal volumes to continue to fall through to Q3 and, with less liquidity in the market and reduced debt market liquidity, appetite and capacity for doing deals will continue to decline.”

“However, our detailed analysis of the results of KPMG’s Predictor, coupled with historic M&A cycle trends, leads us to believe that there are indications that the corner may well be turned late in the second half of this year. I believe that those people who ended 2008 feeling battle fatigued in the face of endless bad news stories have started the New Year with a desire to kick-start the deals market — something which may be facilitated by the opportunities which will inevitably emerge for value investors in certain regions and sectors. I also believe that the market players to watch will be those able to execute cash deals — such as companies who have preserved cash contingency funds; some sovereign wealth funds; and private family offices. Within 12 months, I think we will start to see some clear signals of a slow, but purposeful, recovery in the M&A transactions marketplace. A reliable indicator that this time has arrived will be when quality assets come on the market and go for reasonable, rather than fire-sale, prices.”

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in