india going global.indd - The IIPM Think Tank

MERGERS & ACQUISITIONS
percent above the 15.1x at the end of 2006. Net debt
to EBITDA ratios for the region weakened slightly,
from 0.8 times to 0.88 times.
By sector, Utilities are eliciting the most significant
“activity” signals, with forward PEs up 12.7 percent to
19.8x. Net debt to EBITDA ratios in European Utilities
remain typically among the highest of any sector
and have deteriorated slightly from 1.44 x to 1.52 x.
Industrials has also shown a strong tendency with PE’s
up 10.9 percent to 17.7x, with net debt to EBITDA
weakening slightly from 1.59 x to 1.65 x. Consumer
Services and Telecoms were also strong (PE up 9.6
percent and 8.4 percent respectively). Oil and Gas was
the weakest performer though balance sheets remain
very strong with net cash, though this position has
deteriorated during the past six months.
The European market remains largely buoyant. The
key difference between now and then, however, is the
dramatic influence of private equity, which continues
to hunt-down stable cash flow, attractive growth prospects
and profitable companies. Private equity players
are accounting for a greater volume of deals being done,
but more importantly average private equity deal size
is increasing, with the likes of Carlyle and Blackstone
highly prominent in Europe. Of course the efficient
debt market is supporting market buoyancy. Liquidity
remains good, enabling highly-leveraged deals to be
undertaken.
U.S.A.
The U.S. traded sideways in terms of valuation with
an almost unchanged forward PE of 17.9x, slightly up
from 17.7x six months ago. Similar to Europe, balance
sheets remain robust though have deteriorated with
net debt to EBITDA ratios of 0.82 times to 0.96 times.
Within the region, the most positive sector is Oil and
Gas with forward PEs rising 13.6 percent from 11.7x
to 13.3x. Balance sheets remain strong at 0.41 times
indicating that this represents the comparatively hot
sector going forward. Telecom is close behind with
forward PEs rising 11.2 percent from 15.7x to 17.5x,
though net debt EBITDA ratios have deteriorated
to 1.41 times. According to Dealogic data this is the
fourth consecutive drop in deal volumes. Most other
sectors within the U.S. remain relatively stable, though
Healthcare has experienced negative developments in
forward PEs from six months ago (down 4.1 percent
to 17.7x).
Liquidity in the market is still good so the ability to
get deals fi nanced remains high, fuelling M&A activity
in North America. A lot hinges on the recovery for
North American Auto Original Equipment Manufacturers
and the impact it could have on the significant
parts suppliers throughout the continent. Consolidation
in the auto parts industries is expected to pick up pace.
Furthermore, competitive global pressure on North
American manufacturers has put significant pressure
on CEOs to reach for increased economies of scale and
penetrate new markets, which should support M&A
activity in the medium term.
North of the border, there may be a more robust
picture. A large part of Canada’s ever-popular income
trust sector was halted last year by proposed changes to
the Canadian Income Tax Act causing many of these
mid-size public companies to evaluate their strategic
options and participate in significant M&A activity.
There are 250 income trusts in Canada with a market
capitalization of approximately US$200 billion. Energy
and resource companies are still expected to remain
strong as world commodity markets experience strong
growth from growing global demand.
Asia Pacific:
Asia Pacific:
Asia Pacific has continued to experience a valuation
decline, down a further 4.9 percent to 17.0x, compared
to 17.9x as at the end of December 2006 and 18.9x as at
the end of June 2006 continuing to suggest an “easing”
of potential M&A activity. Contrary to North America
and Europe, its balance sheet has strengthened with
net debt EBITDA falling from 1.0 times to 0.97 times.
Furthermore foreign direct investment in Asia is expected
to remain strong, particularly China.
The biggest “fallers” contributing to valuation
weakness and therefore falling appetite for deals in
the region are Consumer Services and Oil and Gas.
Consumer Services forward valuation declined 8.7 percent
from 22.5x to 20.6x, with Oil and Gas forward
PE down by 7.1 percent from 12.4x to 11.5x. Only
telecoms remained “warm” with forward PE’s up 9.4
percent to 17.5x with net debt EBITDA remaining
modest and 0.34 times. s
Global fi ndings show the number of deals falling for
the first half year period since H2 2002, and forward
valuations have now been static for four consecutive
half-yearly periods. However, fundamentals still look
sound in the Asia region. Overall, interest rates remain
low and show no signs of any significant increase - the
debt markets are highly competitive although with recent
signs of tightening. Currencies remain robust and
the booming regional resources sector with demand
driven commodity pricing is not expected to slowdown
any time soon. Any fall off in the “price paid” by the
market for earnings streams could signify an easing in
the appetite for assets at perceived inflated levels”.
July-October - 2007 Need the Dough
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