Research suggests companies are gaining confidence to make takeover bids
Big companies still have the motive and means to embark on takeovers despite headwinds in the economy and a fall in financial firepower, according to research published today.
British firms are expected to see a 13pc rise in their forward price-to-earnings ratios in the coming year, in a sign of confidence about their ability to strike deals. However, a 7pc fall in net debt as a portion of earnings suggests that companies are less inclined to get themselves into debt to pursue mergers and acquisitions (M&A).
The volume of completed deals around the world fell by 8 pc from February to June, when 22,492 transactions were concluded. By value, the total has fallen 30pc to $1.5bn a month, according to KPMG. The number of announced deals that are yet to be completed remains broadly steady.
Despite an unsettled start to 2015 that has deterred some deal-makers, with the falling oil price and worries around Greece’s position in the eurozone generating uncertainty, KPMG found that companies on the ground were still considering deals.
“With the debt markets more accessible than they have been for some time, our view is that the capacity for deals by UK corporates is showing little sign of diminishing,” said Andrew Nicholson, Head of M&A in the UK for KPMG. “Couple this increasing buoyancy with a more stable economy and a greater convergence between vendor and purchaser price expectations, and all the signs are there that UK deal volumes will increase steadily over the coming months.”
Some sectors, such as energy, pharmaceuticals and insurance, have seen a handful of blockbuster deals this year that have been driven by particular market conditions.
The 50pc fall in the price of oil over the past year has driven some companies to seek shelter as part of a larger group. Shell is poised to take over BG Group in a £50bn deal, while the US group Halliburton is set to merge with Baker Hughes.
A poll in April by EY found that a majority of senior executives at large firms from 54 countries said their company was actively pursuing deals, rising from 31pc to 56pc in the past year.