More Chances for M&A
It was predicted that a sharp increase in big Korean companies’ capabilities to raise cash will promote big deals in the M&A market. KPMG announced in its 2016 M&A Outlook Report that the average cash flow index of major Korean companies rose to 0.4, an increase of 41 percent from the previous year.
The cash flow index is the figure coming out by dividing net debts with EBITDA (earnings before interest, taxes, depreciation and amortization). The lower this index is, the more cash the company has. The world M&A market accepts this index as a company’s trade capability.
KPMG calculated cash flow indices by nation by selecting the world’s 1,000 companies based on their market capitalization. The list included 19 large Korean companies such as Samsung Electronics, Korea Electric Power Corporation and Hyundai Motor. The average cash flow index of the 1,000 companies was 1.2.
“Recent low growth is fueling Korean companies’ demand for preemptive business reorganization, improvement in corporate governance and restructuring,” Shin Kyung-seop, head of the Financial Consulting Division at Samjong KPMG. “The addition of a lot of financial investors with strong financial power will promote the Korean M&A market this year.”
In the Asian region, Taiwan’s M&A capability index grew 81 percent year on year, showing the largest growth. Malaysia (26 percent), India (24 percent), China (19 percent) followed Taiwan and Korea. Besides, last year, M&A deals in the world added up to US$3,709 billion, an increase of 31 percent from US$2,828 billion in 2014 according to the report.