Anticipation high for increased M&A
Tuesday, 15 December 2009 — There are increasing signs local merger and acquisition (M&A) activity will pick up in the new year, according to a new study by Ernst & Young.
The study, Why capital matters – building competitive advantage in uncertain times, which includes the inaugural Ernst & Young Capital confidence barometer, is underpinned by a survey of 490 senior executives from around the world, including nearly 10% from Australia.
Graeme Browning, Ernst & Young Oceania Leader for Transaction Advisory Services, says that 46% of Australian companies claim to be well positioned from a financing and decision-making perspective to make an acquisition within 30 days if the right opportunity presents itself.
Further, the study shows 29% of Australian companies and 25% of companies globally are likely or highly likely to acquire other companies in the next six months.
“It is a good sign that decision-makers now have the confidence, capacity and strategy to make acquisitions. Companies have used the stronger equity markets to strengthen their balance sheets and are now looking to put that capital to work,” says Browning.
This is particularly relevant considering 94% of Australian companies surveyed anticipate restricted financing for major investments over the next 12 months and the majority of Australian companies surveyed intend to finance deals from cash resources.
“The readiness of these companies to execute will sound a warning shot to those less prepared who may be vulnerable. This is particularly telling given 80% of Australian and 65% of companies globally anticipate consolidation in their industries.”
The Ernst & Young Capital confidence barometer reveals ongoing concerns from corporates over the reticence of debt providers to fund deals at anywhere near the previously seen leverage levels. This is being cited by corporates as a significant reason for the price-expectation gap between potential acquirers and sellers of assets for financial buyers and less leveraged propositions.
Australian companies are more positive about M&A activity in the domestic market in the next 12 months than their global counterparts, with 36% rating the outlook as very favourable compared to just 18% of companies globally who were positive about the outlook in their respective domestic markets in the next 12 months.
However, although greater M&A activity is expected, Browning says deal makers can expect greater Board scrutiny on due diligence, the robustness of forecasts and stress testing scenario analyses before making major investment decisions.
This is reflected in the survey, with 82% of Australian respondents advising that decision-making rigour had increased as a result of the financial crisis.
In fact, most Australian companies feel some constraint in pursuing growth strategies due to factors such as Board scrutiny, business case thresholds and valuation uncertainty.
“Clearly those companies that move first to improve their evaluation capabilities to deal with these new demands will be able to respond more quickly to opportunities and build competitive advantage in the market,” says Browning.
-ends-
About the study
Why capital matters is issued as businesses the world over seek to come to terms with the full extent of the financial crisis and the uncertain recovery that lies ahead.
The objectives of the study are to gauge corporate confidence in the economic outlook, to understand boardroom priorities in the next 12 months and to identify the emerging practices that will distinguish those businesses that will seize the initiative and build competitive advantage as the global economy continues to evolve.
The study contains the inaugural findings of Ernst & Young’s Capital confidence barometer, a global survey of 490 senior executive’s transaction and capital structure intentions conducted by the Economist Intelligence Unit (EIU), interpreted and informed by a global panel of Ernst & Young partners.
The Capital confidence barometer will be rerun throughout 2010 to gauge shifts in boardroom sentiment, confidence, focus and activity as the dynamics of the post-recession environment become clearer.
About Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 144,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. For more information, please visit www.ey.com.
Ernst & Young refers to the global organisation of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.
The Ernst & Young organisation is divided into five geographic areas and firms may be members of the following entities: Ernst & Young Americas LLC, Ernst & Young EMEIA Limited, Ernst & Young Far East Area Limited and Ernst & Young Oceania Limited. These entities do not provide services to clients.
This news release has been issued by Ernst & Young Australia, a member firm of Ernst & Young Global Limited.
Liability limited under a scheme approved under Professional Standards Legislation.
Contact details
Megan Ball
Ernst & Young
Tel: +61 2 8295 6427
