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Business News/ Companies / News/  2014 likely to see more M&A deals by global investors: KPMG study
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2014 likely to see more M&A deals by global investors: KPMG study

Sectors such as chemicals, industrials, manufacturing and pharma are attractive for corporate M&As

Last year, there were 500 M&A deals worth nearly $28 billion compared with 598 deals worth $35.4 billion in 2012 and 644 transactions worth $44.6 billion in 2011. Photo: MintPremium
Last year, there were 500 M&A deals worth nearly $28 billion compared with 598 deals worth $35.4 billion in 2012 and 644 transactions worth $44.6 billion in 2011. Photo: Mint

Mumbai: The world’s largest companies could be hungrier for mergers and acquisitions (M&A) in 2014 compared with a year ago, said a report released on Wednesday.

In India, M&A activity may pick up if the economy shows signs of revival and the global economy remains stable, according to the Global M&A Predictor study by KPMG, an audit and consultancy firm.

The report covers the world by sector and region and is produced twice a year, using data comprising 1,000 of the largest public companies, excluding financial services and property sectors, in the world by market capitalization.

The predictions come at a time when M&A transactions in India slipped to the lowest in three years in 2013. Last year, there were 500 M&A deals worth nearly $28 billion compared with 598 deals worth $35.4 billion in 2012 and 644 transactions worth $44.6 billion in 2011, according to an analysis of data compiled by various deal-tracking firms.

This year will see more M&A deals than 2013, predicts Vikram Hosangady, head of transactions and restructuring at KPMG India, adding that India lost its attraction for strategic investors in the last 12-18 months, but things are beginning to change.

“A lot of capital that was moving away from India to other emerging markets like Brazil and Turkey is now coming back as investors are realizing that it’s not easy to do deals in those geographies," Hosangady said on the phone.

Sectors like chemicals, industrials, manufacturing and pharma are attractive for corporate M&As, he added.

Estimated price-to-earnings (P-E) ratio, which shows how expensive a stock is, was 16% higher in December compared with 12 months ago, the study shows. A higher P-E ratio also signifies higher market expectations.

With falling net debt to Ebitda ratios, analysts expect firms to be more capable of M&A transactions during 2014 than before. Ebitda, or earnings before interest, taxes, depreciation and amortization, is a measure of cash flow.

“The growing appetite for deals and an increase in pressure to transact are two sides of the same coin," said Tom Franks, global head of corporate finance at KPMG International and a partner with the UK firm. “Investors have been patient over the last three or four years. But as deal capacity continues to rise and global markets maintain some stability, the pressure on cash-rich corporates to start deal-making again is going to intensify."

The consultancy started to see more traction and interest in the last quarter and expects that 2014 will be a much better year for deal-making, said Ashok Mittal, head of corporate finance at KPMG India.

“Whilst the IPO (initial public offering) market remains uncertain, secondaries (one private investor buying stake of another) will continue," Mittal said. “We are also seeing an increasing trend of buyout transactions, especially in industries where there is good professional talent available, such as consumer, pharma and technology."

Meanwhile, deals in the healthcare sector are expected to continue. According to the study, estimated P-E ratios for healthcare companies rose 24% over the year, followed by industrials (23%) and technology (22%). In terms of capacity, healthcare again leads the way with a predicted rise in capacity of 45% over the next 12 months.

It’s not just KPMG that’s expecting an increase in M&A activity in India.

On the basis of the pipeline of deals in the market right now, M&A interest is much higher than before, particularly from Japanese, European and American investors, according to Vivek Gupta, partner (M&A practice) at BMR Advisors.

“Nothing has fundamentally changed for India. What has happened is that these investors now have the money to invest. Japanese investors are being encouraged by their government to invest overseas, Americans had huge capital flow," he said. “These investors know that growth rates are in the emerging markets."

The ticket sizes for M&As in India is fairly wide, he said. “There are lots of conversations on right now for large deals," Gupta said, adding that investors are mostly worried about policy changes.

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Published: 29 Jan 2014, 11:35 PM IST
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