ma predictor feb 2012

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M&AFEBRUARY 2012

Confdence dips in global marketDespite still being up on the dark days o 2009, the

frst six months o 2012 look set to be challenging.

As indicated by the alling worldwide deal market,there has been a all in confdence or global M&A, with

orward P/E ratios down by 5 percent since June 2011

and down 14 percent over a year. It is a slower rate o

decline than in the previous six months, but nevertheless

it indicates that the gradual improvement in M&A over the

past two years is coming to a halt.

PREDICTOR

KPMG’s M&A Predictor is a forward-looking tool that

helps clients to forecast worldwide trends in mergers

and acquisitions. The Predictor was established in

2007. It looks at the appetite and capacity for M&A

deals by tracking and projecting important indicators

12 months forward. The rise or fall of forward P/E

(price/earnings) ratios offers a good guide to the

overall market condence, while net debt to

EBITDA (earnings before tax, depreciation and

amortization) ratios help gauge the capacity of

companies to fund future acquisitions.

The Predictor covers the world by sector and

region. It is produced twice a year, using data

comprising 1,000 of the largest companies

in the world by market capitalization.*

David SimpsonGlobal Head of

Mergers & Acquisitions

What is

KPMG’sM&APredictor?

*The fnancial services and property sectors are excluded rom our analysis, as net debt/EBITDA ratios are not considered relevant in these industries. All the raw data within thePredictor is sourced rom Capital IQ. Where possible, earnings and EBITDA data is on a pre-exceptionals basis with the exception o Japan, or which GAAP has been used.

Market

Confidence

Since December

2010

14%

18%

Net Debt/

EBITDA

Source: Capital IQ/KPMG analysis

By December

2012

© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member frms o the KPMG network o independent frms are afliated with KPMG International. KPMG International provides no client services. All rights reserved.



Some sectors aring better than others

Across all sectors, year ahead net protexpectations have dropped since our last survey.

This is the rst time in two years that this hashappened, with the pinch being felt especially

in Basic Materials, Industrials, Utilities andConsumer Discretionary.

Against this backdrop, condence in many industriesis predictably muted, with forward P/E ratios

particularly down in Basic Materials (14 percent down)and Industrials (9 percent down).

Some sectors are bearing up better than others,

however. Consumer Staple actually registers a 2 percentforward P/E ratio increase, while Technology remains

at. Viewed in the longer term, Healthcare is also faringrelatively well. Despite registering a 3 percent P/E decrease

between June and December 2011, this is on the back oftwo successive six-month increases, leaving the sector in an

overall healthier situation than it was 12 months ago.

16

15

14

13

12

11

10

9

8Dec-10 Jun-11 Dec-11

Market confidence by industry sector

Basic materials Consumer discretionary Energy

Healthcare Industrials Consumer staple

Technology Telecommunications Services Utilities

F o r w a r d P / E r a t i o s

Confdence lags capacity

Appetite in the M&A market continues todrop, although the capacity to transactcontinues to rise, with overall net debt

forecast to drop 12 percent globallyand net debt to EBITDA ratiosexpected to be down 18 percent.This increased capacity to transactis not matched by the motivationto undertake deals in the currentclimate – a reluctance that lookslikely to set the tone for the nextsix months.

While condence

drops, capacity is

still rising.

Source: Capital IQ/KPMG Analysis




Lack o confdencerestricts deals

The total number of dealscompleted worldwide withinthe last 12 months has fallen,with particular declines inthe EMA and AsPac regions.However, global deal values aremodestly up, suggesting that

the big players are driving mostM&A activity while smallerrivals struggle.

There are big variationsbetween some of the world’smajor economies with India and

Germany showing condencedrops of 19 and 18 percentrespectively over the last sixmonths compared with the

UK with only a 2 percent dropand the US which remains at.Globally, forward P/E ratios aredown across most countries.One notable exception is Japan,which registered a 10 percent

increase over the pastsix months. This is probablydue to unusually low mid-year gures as a result ofthe tsunami, rather than a

miraculous recovery, and itis probably more accurate tocompare year-on-year data.

With a general downwardtrend in net debt/EBITDA ratiosglobally, companies have morecapacity to undertake M&A butare not showing the condenceto do so. Instead, they areprioritizing debt reduction and

balance sheet managementover M&A growth opportunities.

Overall the rst six months of2012, and probably beyond,will show an interruption to

Worldwide completed deals: 1 year trailing January – December 11

V a l u e ( U S $ m )

N u m b e r o f d e a l s

Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul -11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11

No. of Deals Value (US$m)

28,000

28,500

29,000

29,500

30,000

30,500

31,000

31,500

32,000

32,500

33,000

1,800,000

1,900,000

2,000,000

2,100,000

2,200,000

2,300,000

2,400,000

2,500,000

Americas completed deals: 1 year trailing January – December 11

V a l u e ( U S $ m )


Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11


10,900

11,000

11,100

11,200

11,300

11,400

11,500

11,600

11,700

11,800

11,900

1,050,000

1,100,000

1,150,000

1,200,000

1,250,000

1,300,000

1,350,000

AsPac completed deals: 1 year trailing January – December 11

V a l u e ( U S $ m )


Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul -11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11


7,000

7,500

8,000

8,500

9,000

9,500

400,000

450,000

500,000

550,000

600,000

650,000

EMA completed deals: 1 year trailing January – December 11

V a l u e ( U S $ m )


Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11


13,000

13,500

14,000

14,500

15,000

15,500

600,000

650,000

700,000

750,000

800,000

850,000

900,000

950,000

1,000,000

We are forecasting a modest decline in

M&A for the rst six months of 2012.

the M&A recovery of thepast two years, especiallyas uncertainty over theEurozone crisis continues.We are not forecasting a

steep decline; deal activitywill likely be supported bycorporate cash, private equityand the availability of targetcompanies.


Source: Thomson Reuters SDC/KPMG analysis

Note: Figures shown are totals for the 12 month period up to the specied date



KPMG Global M&A team

The ability to create, enhance or preserve value iscritical in any economy. For many organizations, thismeans taking advantage of merger or acquisitionopportunities. We can support you – whether you

are on the buy side or the sell side – with services thatcover the full life cycle of a transaction.

The inormation contained herein is o a general nature and is not intended to address the circumstances o any particular individual

or entity. Although we endeavor to provide accurate and timely inormation, there can be no guarantee that such inormation is

accurate as o the date it is received or that it will continue to be accurate in the uture. No one should act on such inormation

without appropriate proessional advice ater a thorough examination o the particular situation.

© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member frms o the KPMG network o independent

frms are afliated with KPMG International. KPMG International provides no client services. No member frm has any authority to

obligate or bind KPMG International or any other member frm vis-à-vis third parties, nor does KPMG International have any such

authority to obligate or bind any member frm. All rights reserved.

The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks o KPMG International.

Designed by Evalueserve.

Publication name: M&A Predictor

Publication number: 120105

Publication date: February 2012

kpmg.com

ma predictor feb 2012

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