Investors hungry for deals

Despite economic turbulence and market turmoil, 41% of leading international companies expect to make an acquisition in the next 12 months, according to Ernst & Young’s latest Capital confidence barometer, based on a survey of more than 1,000 senior executives around the world. Surprisingly, that is a slight increase on six months ago, despite the intense market turmoil during August, when the survey was conducted. In Canada, 45% of companies are planning to make an acquisition in the next year, up from 32% in April 2011.

Stronger balance sheets together with a greater focus on operational fitness mean there is a continued appetite for M&A among large cap corporates. There is also a greater convergence around the price of assets, encouraging sellers to come to the table. Almost two thirds (57%) see valuations remaining at current levels for 12 months, resulting in a 30% uptick in potential sellers compared with six months ago—26% of businesses now plan to divest in the next year.

The fifth bi-annual Capital confidence barometer, finds that almost half of respondents are focused on growth in the next 12 months, with only 7% now focusing on survival—the lowest number since the barometer was first published in 2009.

Despite concerns over weakening global growth, many of the leading companies are surprisingly optimistic about their own national economy as well as the long-term global economic outlook. Declining growth in the U.S., coupled with the country’s credit downgrade and the escalating sovereign debt crisis in the eurozone sparked dramatic stock market activity at the time of the survey. Despite this, two thirds (63%) of respondents feel that the global economy is at least stable. Confidence is particularly high in sectors such as power and utilities, oil and gas and metals and mining.

The most attractive markets for investment according to the survey are China, India, Brazil, the US and Australia. Outside the recognized BRIC countries Malaysia, Mexico and Argentina are the three most popular emerging market destinations for investment. More than a third of respondents said their motivation for M&A was to gain share in a new market.

A large majority of respondents (87%) are concerned that mounting regulatory pressures could potentially impede growth. Regulatory risk could de-rail growth plans—particularly in the area of banking and financial reform, which could have a broad impact across sectors and geographies.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.