• 2018 transactions already hit US$1 trillion in Q1.
• Geopolitical concerns make a minimal dent on cross-border deals in 2017; rebound already underway in 2018 amid strong mid-market deals.
• Sector convergence into the tech industry hits a 10-year high as more companies join the race for innovation.

KPMG International’s 2018 M&A Predictor report is calling for another robust year of global mergers and aquisitions, with predicted appetite and capacity for deals both expected to increase by 5 percent and 17 percent, respectively. This compares well with 2017, when predicted appetite was relatively flat at 1 percent.

This year is certainly off to an encouraging start and continues what was a strong Q4 in 2017, with global M&A deals in the first quarter of 2018 soaring just past US$1 trillion – a healthy jump from US$749 billion in the first quarter of 2017. Average deal value in the first quarter of this year was also up significantly, rising about 42 percent to a 10-year high of US$124 million and returning above the US$100 million mark seen in 2015-2016.

“The demand for good assets and companies remains very high, against a backdrop of favorable capital markets and low interest rates. Whether it’s large corporates with significant cash on their balance sheets, or growing sums of private-equity money seeking transactions, M&A players are active and bidding up valuations,” says Philip Isom, Global Head of M&A, KPMG International. “The abundance of private equity ‘dry powder’ sitting idly on the sidelines cannot persist indefinitely.”

“This outlook may well be mirrored locally where appetite for M&A deal-making continues,” says David Pace, KPMG in Malta’s M&A lead. “The buyer universe continues to be characterised by activity from both corporates and private equity. Maltese corporates are following either consolidation or diversification strategies, or indeed a combination of both, while private equity is particularly active in the technology space. Meanwhile sizeable attractive assets are coming to market which could spur cross-border activity.”

KPMG International’s M&A Predictor is a forward-looking tool that helps member firm clients forecast worldwide trends in mergers and acquisitions. Data looks at cross-regional, cross-border and cross-sector deal flows, combined with sector specialists, to provide a more in-depth analysis of the next 12 months.

Cross-border deals changed little in 2017 compared with 2016, with more than 9,000 deals and more than US$1 trillion in overall deal value.

“Despite all the noise on the global geopolitical front, cross-border dealmaking, particularly in the middle-market, was largely unaffected,” says Leif Zierz, Global Head of Deal Advisory, KPMG International. “Combine this with the ever-increasing pressure to rapidly transform and innovate and we see a strong market in 2018, especially in tech-related deals, which continues to take a larger piece of the sector convergence pie.”

In 2017, sector convergence into technology reached a 10-year high of US$144 billion in deal value. Every sector has hit a 10-year high in cross-sector deal volume into the technology sector over the last 3 years, as the hunt for innovative technologies and digital capabilities continues unabated. Industrial manufacturers have been the keenest buyers of technology companies, more than doubling the value of deals into the sector in 2017 vs 2016.

KPMG International’s M&A Predictor looks at the appetite and capacity for M&A deals by tracking and projecting important indicators 12 months forward, including P/E (price/earnings) ratios, a good guide to the overall market confidence, and net debt to EBITDA (earnings before interest, tax, depreciation and amortization) ratios, to gauge the capacity of companies to fund future acquisitions. The Predictor covers the world by sector and region and is produced using data comprising 2,000 of the largest companies in the world by market capitalization. All raw deal data is sourced from CapitalIQ and Dealogic, with further analysis provided by KPMG. Dealogic data is used to provide historical deal trends in order to compare the predictions with actual results.

KPMG in Malta is a Maltese Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. The network operates in 154 countries and territories and has 200,000 people working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

David Pace
Partner, Deal Advisory, KPMG in Malta
Direct: +356 2563 1160
General: +356 2563 1000
Email: davidpace@kpmg.com.mt

Amy Pace
Assistant Manager, Markets, KPMG in Malta
Direct: +356 2563 1033
General: +356 2563 1000
Email: amypace@kpmg.com.mt