KUALA LUMPUR: Forward price-earnings (PE) ratios for the global corporate market have climbed 7% to 14 times for 2010 from 13.1 times for 2009, indicating that deal-making appetite has improved and the merger and acquisition (M&A) market will recover this year, said KPMG.

In its Global M&A Predictor, KPMG also noted that deal-making capacity was on the rise based on a comparison of next year’s forecast net debt to Ebitda (earnings before interest, tax, depreciation and amortisation) ratios with current levels expected to decline by 18% from 1.5 times to 1.2 times.

However, the financial services and property sectors were excluded from this analysis as their net debt to Ebitda ratio calculation was considered irrelevant for the report's purposes.

"These results bear all the hallmarks of a market that has been reset for growth," said KPMG head of global M&A David Simpson in a statement today.

"If we had not taken into account analysts' reduced forecasts for 2009, we would now be showing unrealistic increases in forward PE ratios of over 30%. Once we had done so, however, a more sensible figure of 7% emerged."

According to the statement, analysts were over-optimistic in 2009 earnings predictions and as at end-2009 had revised their expectations downwards by 20% from their original forecasts a year earlier.

KPMG's report indicated that despite tight credit markets, a slow but assured improvement in global market deals would be seen in the next 12 months. It added that analysts expected to see a 24% increase in earnings for 2010 over 2009.

KPMG said Latin America was found to display the highest increase in PE ratios, rising 62% from 8.9 times to 14.5 times, followed by the Asia-Pacific region ex-Japan at 35% and Africa and the Middle East at 13%. Europe showed a more restrained rise in PE ratio forecast at 7% while North America trailed at 4%.

As for net debt to Ebitda ratios, it said Africa and the Middle East predicted a 37% decline to 0.5 times from 0.8 times, followed by North America at 24%, Asia-Pacific ex-Japan at 20%, Latin America at 18% and Europe at 15%.

The report also showed that Japan was the only major economy to register a 41% fall in forward PE ratio although its forecast net-debt-to-Ebitda-ratio was in line with predicted global figures, declining 12%.

In a sector analysis, the report showed that basic materials posted a forward PE up by 17% and net debt down by 32%.

"We can also expect M&A in technology and non-cyclical consumer goods to perform well with 20% and 16% increases in PE ratios respectively," said KPMG.

"Healthcare and cyclical consumer goods look very good on the debt front, posting 41% and 23% falls respectively."

The Global M&A Predictor is calculated against KPMG's Global 1,000 Index, which comprises 1,000 of the world's largest companies by market capitalisation. The report attempts to identify changes over time that could imply trends in appetite and capacity for deals.