Technology sector set to be 2010 M&A leader

KPMG figures reveal UK economy is set to regrow in 2010, with the technology sector at the top of the pile

The technology sector is set to lead the way in M&A activity this year, according to KPMG’s latest Global M&A Predictor report.

The report, which also claimed the UK is “reset for growth in 2010”, says forward-price-to-earnings ratios are seven per cent higher compared with last year’s figure, which KPMG claims suggests a “gentle increase” in corporate appetites for deals.

In addition, corporate net debt compared to EBITDA is expected to decline in 2010, which points to the fact that corporates have more capacity to do deals, even though debt is still tight. In the technology sector, adjusted-price-to-earnings ratios have increased by 20 per cent.

Jonathan Stankler, technology partner at KPMG, said: “Technology companies have generally exhibited relatively strong financial performance, in volatile conditions, with a resultant increase in share price.

"Coupled with the comparatively low debt levels and, in many cases, sizeable cash piles, it would not be at all surprising to see the technology sector lead the way in driving forward mergers and acquisitions activity on a global basis. Equally, to the extent that the IPO pipeline materialises, technology companies are likely to feature strongly," he added.

David Simpson, global head of M&A at KPMG, added: “Crunching the numbers shows just how much analysts overestimated corporate earnings in 2009 – by some 20 per cent – thus skewing any clear view of the market for mergers and acquisitions.

“The latest company earnings forecasts look far more sensible, suggesting reality has finally caught up with the market. With feet firmly planted back on terra firma and earnings forecasts reset to sensible levels, the M&A market is set to make a modest return in 2010 both in the UK and globally.”