M&A appetite in S'pore slows amid volatile markets

A KPMG report shows that Singapore businesses are less willing to ink merger and acquisition deals despite having more funds than their average global counterparts. But KPMG Singapore's head of M&A, Mr Benjamin Ong, believes that deal-making will pic
A KPMG report shows that Singapore businesses are less willing to ink merger and acquisition deals despite having more funds than their average global counterparts. But KPMG Singapore's head of M&A, Mr Benjamin Ong, believes that deal-making will pick up when markets are calmer.PHOTO: BLOOMBERG

Firms' appetite projected to fall 2% despite a 22% rise in capacity to fund such deals

Singapore businesses will have more funds than most to buy other companies over the next year - yet they will be less inclined to do so than their global counterparts, a new report has said.

It found that firms here are better placed than their average global counterparts to ink merger and acquisition (M&A) deals.

The KPMG report estimated that Singapore companies will have an expected increase of 22 per cent in capacity to fund such transactions over the next 12 months.

But it is the only market among five Asean economies included in the study where appetite for M&As is tipped to fall - by 2 per cent.

Nonetheless, KPMG Singapore's head of M&A, Mr Benjamin Ong, believes that deal-making will pick up when markets are calmer.

"Despite the recent volatility in stock markets and tensions in the global economy, Singapore remains an attractive platform for foreign investors looking to expand into South-east Asia," he said yesterday. "We expect deal activity to pick up when volatility eases.

"Over the long term, prospects - boosted by the upcoming formation of the Asean Economic Community - look good for the Asean region."

The study, which looked at the world's largest 1,000 companies by market capitalisation, found that these firms have increased appetites and war chests for M&A deals over the next 12 months.

KPMG expects that predicted forward price-to-earnings (PE) ratios - its measure of corporate appetite or confidence - will increase 11 per cent between June this year and June next year.

Over the same period, the world's largest businesses are also expected to enjoy a 7 per cent rise in their capacity to fund transactions, as debts continue to be paid down and cash reserves increase.

KPMG measured this by looking at the firms' forecast net debt to earnings before interest, tax, depreciation and amortisation (Ebitda) ratios. Companies in Asia have especially healthy cash reserves, it noted.

In Japan, analysts forecast a 26 per cent rise in corporates' capacity to fund deals while in other Asia- Pacific countries, companies will have an average 16 per cent increase in their war chests.

"The long-term scenario looks promising for the Asia-Pacific region, helped by political stability and the establishment of the Asean Economic Community," said Mr Bob Yap, the Asia-Pacific head of deal advisory in Singapore.

"More specifically, there has been a  growing interest among Asian private equity firms in South-east Asia countries."

A version of this article appeared in the print edition of The Straits Times on September 18, 2015, with the headline 'M&A appetite in S'pore slows amid volatile markets'. Print Edition | Subscribe