Singapore's M&A appetite expected to drop despite growing capacity

SINGAPORE continues to buck the trend on the mergers and acquisitions (M&A) front, with appetite expected to drop despite continued growth in capacity.

According to the latest KPMG Global M&A Predictor, a forward-looking tool that helps to forecast worldwide trends in M&A deals, Singapore is the only nation, out of the five Asean nations analysed, that registered an expected 2 per cent fall in appetite over the next year.

Indonesia and Thailand are expecting a growth in appetite above the global average of 11 per cent - the former's appetite is expected to increase by 16 per cent, the latter by 17 per cent. The forward P/E ratios for Malaysia and the Philippines are expected to increase 6 and 10 per cent, respectively.

In terms of the capacity to transact, however, Singapore performed well above the global average, with an expected increase of 22 per cent in capacity to fund deals.

The other Asean nations are also expected to have more capacity over the next year. Indonesia's capacity is expected to grow 12 per cent, Malaysia's 15 per cent and the Philippines' 16 per cent. Only Thailand's growth in capacity (4 per cent) falls below the global average.

Benjamin Ong, head of mergers & acquisitions at KPMG in Singapore, said: "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. We expect deal activity to pick up when volatility eases."

Sectorially, the challenges in the global energy market that are potentially hampering M&A appetite in some markets are in evidence in the 19 per cent fall in market capitalisations of the largest corporates in the energy sector between June 2014 and June 2015. Profits are also down considerably over the same 12-month period, said the accounting firm.

Conversely, the healthcare sector looks more stable, with an 18 per cent increase in market capitalisation and a 7 per cent rise in appetite for M&A.

Said Mr Ong: "With oil prices continuing to experience new multi-year lows and credit tightening in the sector, acquisition plans of some energy companies might be kept on hold until there is some stability in oil prices.

"We also expect to see opportunistic buying, potential forced selling for adversely affected companies and resetting of capital structures to strengthen balance sheets."