Worsening balance sheets and earnings ratios will curb companies’ appetite to buy rivals in 2009, helping extend last year’s 30 percent slide in M&A, according to a study by KPMG.
The study, released on Monday, adds weight to the widely held view that this year will be a meagre one for dealmaking, with debt scarce and expensive, and many companies hoarding cash or simply focused on their own operational performance.
Stephen Barrett, corporate finance international chairman at KPMG, said the data pointed to “a very subdued year”.
“We expect global deal volumes to continue to fall through to (the third quarter) and, with less liquidity in the market and reduced debt market liquidity, appetite and capacity for doing deals will continue to decline,” he said in a statement.
But he added: “Within 12 months, I think we will start to see some clear signals of a slow, but purposeful, recovery,” as cash-rich buyers picked up cheap assets.
KPMG’s “global M&A predictor” uses the ratio of net debt to earnings before interest, tax, depreciation and amortisation (EBITDA) to gauge balance-sheet strength, and forward price-to-earnings (PE) ratios to test the “paper capacity” of companies to buy others using shares.
The Big Four accountant’s study covers 1,000 big companies worldwide but excludes property and financial services firms.
At the end of November, net debt ratios had risen 13.5 percent to 1.06 times EBITDA, compared with six months earlier, while PE ratios dropped 22.2 percent to 11.9 times.
Source: Thomson Merger News