A robust year of global deal-making: 2018 M&A Predictor report

KPMG International’s 2018 M&A Predictor report is calling for another robust year of global M&A deal-making in 2018, with predicted appetite and capacity for deals both expected to increase by 5 percent and 17 percent, respectively. This compares well with 2017, when predicted appetite was relatively flat at 1 percent.

According to Ramachandran Narayanan, Partner and Head of Advisory at KPMG in Bahrain, the next 12 - 24 months will be an exciting time for M&A in the Middle East. “Most of the activities will be driven by Kingdom of Saudi Arabia (KSA) as the country is undertaking a massive transformation to diversify its’ oil dependent economy. Sectors that I expect to accelerate growth include technology, social infrastructure financial services, healthcare, and education and consumer retail.

The United Arab Emirates (UAE) is still considered as prominent business hub in the Middle and I expect the following sectors to remain robust in relations to M&A deal-making: e-commerce, hospitality, logistics, financial services and consumer retail. Additionally, the UAE government has undertaken slew of positive initiatives in the healthcare, technology and digital enabled sectors to prepare the country as a knowledge hub and unleash the new wave of growth as a priority.” Ramachandran commented.

Anshul Deobhakta, Director and Head of M&A at KPMG in Bahrain, added and said “Consolidation is expected to emerge in these sectors as larger established players from overseas markets will look to make inroads in the Arabian Gulf countries as they see a huge potential in the growth prospects in some of these sectors.”

Promising 2018 gets off to a strong start

This year is certainly off to an encouraging start and continues what was a strong Q4 in 2017, with M&A deals in the first quarter of 2018 soaring just past US$1 trillion – a healthy jump from US$749 billion in the first quarter of 2017. Average deal value in the first quarter of this year was also up significantly, rising about 30 percent to a 10-year high of US$124 million and returning above the US$100 million mark seen in 2015-2016.

“The demand for good assets and companies remains very high, against a backdrop of favorable capital markets and low interest rates. Whether it’s large corporates with significant cash on their balance sheets, or growing sums of private-equity money seeking transactions, M&A players are active and bidding up valuations,” says Philip Isom, Global Head of M&A. “The abundance of private equity ‘dry powder’ sitting idly on the sidelines cannot persist indefinitely.”

KPMG International’s M&A Predictor is a forward-looking tool that helps member firm clients to forecast worldwide trends in mergers and acquisitions. Data looks at cross-regional, cross-border and cross-sector deal flows, combined with sector specialist, to provide a more in-depth analysis of the next 12 months.

More sectors join drive for technology

Cross-border deals changed little in 2017 compared with 2016, with more than 9,000 deals and more than US$1 trillion in overall deal value.

“Despite all the noise on the global geopolitical front, cross-border dealmaking, particularly in the middle-market, was largely unaffected,” says Leif Zierz, Global Head of Deal Advisory. “Combine this with the ever-increasing pressure to rapidly transform and innovate we see a strong market in 2018, especially in tech-related deals, which continues to take a larger piece of the sector convergence pie.”

2017 saw the Industrial and Consumer sectors catching the wave that the Financial Services sector has been riding for years. Cross-sector deals for Industrials and the Consumer sectors each exceeded US$85 billion in 2017, nearing the US$100 billion per year FS has spent since 2015 as the hunt for innovative technologies and digital capabilities continues unabated

Predicted appetite for these three sectors: +2 percent for Industrials, +8 percent for Consumer Discretionary, and +7 percent for Consumer Staples. Predicted capacity +11 percent, +17 percent and +12 percent respectively.

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About the KPMG M&A Predictor
KPMG International’s M&A Predictor looks at the appetite and capacity for M&A deals by tracking and projecting important indicators 12 months forward, including P/E (price/earnings) ratios, a good guide to the overall market confidence, and net debt to EBITDA (earnings before interest, tax, depreciation and amortization) ratios, to gauge the capacity of companies to fund future acquisitions. The Predictor covers the world by sector and region and is produced using data comprising 2,000 of the largest companies in the world by market capitalization. All raw deal data is sourced from CapitalIQ and Dealogic, with further analysis provided by KPMG. Dealogic data is used to provide historical deal trends in order to compare the predictions with actual results.

About KPMG International

KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 154 countries and territories and have 200,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

For more information, please contact:

Amy Greenshields
KPMG International
+ 1 (416) 777-8749
amygreenshields@kpmg.ca

© Press Release 2018