KPMG: M&A market set for modest return in 2010

January 22nd, 2010 by Chris St Cartmail

After revisions of "over-optimistic earnings expectations" in 2009, the global and UK M&A market looks re-set for growth this year. That's according to the annual Global M&A Predictor from professional services firm KPMG, which indicates that analysts overestimated corporate earnings in 2009 by some 20 per cent and thereby skewed views of the market.

David Simpson, global M&A head at KPMG, says reality has finally caught up with the market: "With feet firmly planted back on terra firma and earnings forecasts reset to sensible levels, the M&A market is set to make a modest return in 2010."

He points out that the Predictor shows forward price-to-earnings ratios are now seven per cent higher compared with last year's adjusted figure, suggesting a gentle increase in corporate appetite for deals.

Furthermore, it is expected that corporate net debt compared to EBITDA (estimated net debt to earnings before interest, tax, depreciation and amortisation) will decline this year, leaving corporates with more capacity to do deals even though debt is still tight. 

"It is important to highlight, however, that this data is very much about the corporate market," adds Simpson. "The private equity market is much more dependent upon high levels of debt, putting it at a disadvantage until bank lending picks up."