Increase in M&A activity expected

18 January 2010

18 January 2010 | Paul Snell

The appetite for corporate mergers and acquisitions (M&A) is expected to increase moderately in 2010.

According to consultancy KPMG’s annual Global M&A Predictor, price-to-earning (P/E) ratios – the calculation of share price divided by earnings per share which the advisory firm uses to estimate market hunger for deals – are 7 per cent higher compared with 2009.

KPMG said this indicated there would be a “gentle” increase in corporate enthusiasm for deals. “The modest increase in corporate capacity and appetite to do deals feels far more realistic than predictions made this time last year,” said David Simpson, global head of M&A at KPMG.

M&A activity has already begun to pick up in the past few months with deals between Orange (pictured) and T-Mobile and Oracle and Sun Microsystems currently awaiting regulatory approval, and pharmaceutical company Novartis' purchase of eyecare firm Alcon this month.

Simpson added it was probable M&A activity would be led by businesses themselves, rather than by private equity firms, which are dependent on high debt levels and are currently at a disadvantage because of the low amount of bank lending.

Technology was the leading sector, with P/E ratios of companies 20 per cent higher than last year. KPMG said the strong financial results – and resulting high share prices – as well as low debt levels and cash reserves of many firms in the sector makes these companies likely to lead the market in 2010.

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