WITH THE US credit crunch shaking confidence in North America and Europe, the Asia-Pacific could become the new M&A hotspot.
KPMG’s latest Global M&A Predictor resultsindicate that worldwide, deal values are likely to come down in 2008 although the overall number of deals could remain relatively unchanged. Interestingly, however, the results aren’t consistent across the globe. KPMG’s Global M&A Predictor forecasts M&A activity by tracking 12 months forward price to earnings multiples and earnings before interest, taxes, depreciation and amortisation ratios.
According to the Stephen Barrett, KMPG’s international chairman of corporate finance, while the mature markets of North America and Europe are likely to see a deal value slump, the emerging markets in the Asia-Pacific region are set to remain strong.
“There are definitely winners and losers,” he said. “[The results] leave us with a real mixed outlook. Where there is appetite and confidence, there are constraints such as a lack of funds or suitable targets. Where there is cash, there is nervousness, caution and a slight loss of appetite.”
According to KPMG’s corporate finance chair for the Asia-Pacific region, Julian Vella, the region has come out of the US credit crisis relatively unscathed, though he warns that it could still fall victim to some flow-on effects.
“Debt issuance is generally not a constraint for medium sized deals in the region… [However] companies seeking to roll over significant debt to fuel further M&A activity may be hampered by the more stringent terms likely to be imposed by lenders, perhaps even forcing the sale of non-core assets to generate equity and avoid restrictive covenants,” Vella said. “To lessen the ripple effect of a worsening global credit crunch, corporates in the region should urgently review any maturing debt facilities to ensure they remain nimble and the collective appetite for M&A’s stays healthy.”
In Australia, Lawyers Weekly reported recently that 2007 had been a massive year for high value deals, but some lawyers were doubtful that this could be replicated in 2008.
Freehills partner Braddon Jolley believed that although Australia, like the rest of the Asia-Pacific region, has remained relatively protected from the credit crunch, our deal values could still be affected. “I think you’d probably find that those really big deals are less likely this year, certainly until confidence returns,” he said.
But even if values do decline, Jolley doesn’t think this necessarily means that the workflow for lawyers will suffer. “M&A’s a really odd business to be in,” he said. “You can have a really busy year with high value deals or a really busy year with low value deals. The value of the deal doesn’t really change a lot of the work that lawyers have to do.”