Asia Pacific set to outdo US and Europe

SYDNEY: Despite the decline in merger and acquisition activity in the US and Europe, corporate activity in the Asia Pacific region remains strong, according to data from financial services firm KPMG.
KPMG corporate finance chair for Asia Pacific, Julian Vella, said many Asia Pacific national economies were enjoying reasonably strong gross domestic product (GDP) growth.
“We can therefore expect the largely untapped potential of regional and sector consolidation to continue to drive healthy corporate deal-flow,” he said.
Vella singled out financial and consumer services as sectors with the greatest potential for consolidation.
He added that there were some other industries where KPMG expected several medium-sized as well as some “mega-deals” to be done.
KPMG’s global mergers and acquisitions predictor is an index of 1,000 leading companies’ net debt to EBITDA (earnings before interest, tax, depreciation and amortisation) ratios, and price to earnings ratios.
To lessen the ripple effect of a worsening global credit crunch, Vella said corporates in the region should urgently review maturing debt facilities to ensure they remain nimble and the collective appetite for M&A stays healthy.
Globally, KPMG forecast the volume of deal activity this year to hold steady compared to last year, but the average deal value was expected to decline.
KPMG’s data shows that global forward PE ratios have dropped from 17.1 times to 17.0 times.
In the six months from the end of May 2007 to the end of November 2007, global corporate indebtedness actually recovered across all markets, with net debt to pre-tax earnings ratios improving to 0.81 times from 0.91 times.
KPMG showed balance sheets globally remained strong with a net debt/EBITDA ratio of 0.81 times, with Africa/Middle East and Asia Pacific the strongest.
This indicated that, together with increased appetite for deals, these regions also held the greatest capacity for deals.
“Falling valuations and strong balance sheets could mean that 2008 becomes the year for acquisitive companies to consider consolidation and diversification deals,” Vella said. – AAP