UK plc’s capacity to transact forecast to rise by 22% over 2017, as strong balance sheets and healthy bottom lines spur inorganic growth
KPMG’s analysis shows that the capacity of UK corporates to fund inorganic growth, as measured by net debt to EBITDA ratios, is forecast to increase by 22 percent over the next twelve months driven by healthy bottom lines and large corporate balance sheets. This mirrors the global trend, where total market capacity for M&A is predicted to rise by 17 percent as companies continue to pay down debt and bolster their cash reserves.
Sanjay Thakkar, head of Deal Advisory for KPMG in the UK, said: “Today’s businesses need to transform far more radically and quickly than is possible via organic means. Both CEOs and shareholders know this, which is why M&A remains a vital driver for companies seeking change. The good news is that their capacity to transact is buoyant thanks to healthy balance sheets and swelling cash reserves.
“Couple brimming war chests with low interest rates, a favourable debt market, a relatively benign economic climate and a desire amongst corporates to disrupt, and it’s no coincidence that we have seen a plethora of bids – some successful, some otherwise - hit the headlines since the turn of the year. We foresee this to be just the start, and that 2017 could well end up being a landmark year for dealmaking.”
Sanjay Thakkar continued: “Of course, it might not all be plain-sailing. Geopolitical uncertainty, interest rate hikes in the US and increasing talk of protectionism in key markets could all dampen enthusiasm to transact. However, my belief is that the drivers for M&A currently far outweigh the inhibitors.”
Cross-border M&A expected to increase over 2017, with UK firms a prime target
KPMG’s 2017 Global M&A Predictor also analysed historic transaction data both across regions and seven key sectors – Financial Services, Healthcare & Pharmaceuticals, Industrial Markets, Consumer Markets, Energy & Utilities, Chemicals & Basic Materials and Technology, Media & Telecoms.
The study found that while global deal activity was dominated by the US, targets from the UK accounted for a significant proportion of acquisitions, ranking second by volume for all but one[1] of the seven sectors analysed. These findings echo new statistics published by ONS which report that 2016 saw 227 successful inbound deals in the UK worth £187.4 billion - the highest volume since 2011 and the highest annual value since the ONS first published M&A data in 1969.
Andrew Nicholson, head of M&A at KPMG in the UK, believes the attractiveness of UK assets to overseas investors will not diminish in the short term. He said: “International buyers emerged as a real force to be reckoned with towards the end of last year, as overseas trade acquirers – most notably those from the US and Asia - acted opportunistically to take advantage of a weakened sterling. With no sign of a bounce in the pound on the horizon, and the UK economy continuing to confound post-Referendum expectations, UK businesses will remain a target for hungry investors.”
He added: “In the near-term, the fly in the cross-border ointment may come from the increasing protectionist rhetoric emanating from certain countries and uncertainty around international trade policy. However, the long-term outlook remains positive for increased cross-border deal activity.”
Cross-sector deals dominate by volume
A similar analysis shows that cross-sector deals have climbed steadily as a proportion of all deals, rising from the low 30s in the mid-2000s to 43 percent in 2015 and 2016. The value of these M&A activities also rose from 16 to 24 percent over the last 10 years, as a proportion of all deals.
“Cross-sector M&A opportunities will also continue to be a major focus for corporates,” said Andrew Nicholson. “Whether it’s to grow capabilities, competencies or gain a competitive advantage, companies are increasingly eyeing up targets from different markets to their own. Perhaps unsurprisingly, the ones to watch over the coming twelve months will be the tech firms, whose collective war chest continues to outstrip that of any other sector, making them well-placed to continue to disrupt.”
About M&A Predictor
M&A Predictor is an annual publication by KPMG International combining worldwide mergers and acquisitions results from the last 12 months with the appetite and capacity for M&A deals for the upcoming 12 months. The M&A Predictor data is sourced from Capital IQ, Dealogic and KPMG analysis.
About KPMG International
KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 152 countries and have more than 189,000 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.
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