The global deal environment is set to deteriorate over the next 12 months as the grim economic outlook erodes the confidence of companies and their balance sheets weaken, KPMG has warned.

KPMG’s Global M&A Predictor – an index that looks at 1,000 companies and the ratio of their share price to earnings – is forecasting a decrease in both appetite and capacity of companies to make deals. The warning shows a change in sentiment of companies that had hoped the credit crunch would provide opportunities to make acquisitions at cheaper valuations.