Confidence grows - is now the time for M&A?

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Monday 23 April — Corporate confidence in the global outlook is steadily improving and Australasian* companies are positioned for growth, according to EY’s latest six-monthly Capital Confidence Barometer.

Released today, the report is based on a survey of more than 1,500 executives from around the world, including 146 respondents from Australasia, undertaken in February and March.

About a third (30%) of Australasian businesses – twice as many as six months ago – now believe the global economy is improving. All up 82% of Australasian businesses believe the global economy is stable or improving.

EY’s Transaction Advisory Services Leader for Oceania, Graeme Browning, says corporates’ capital agenda focus has moved away from preserving capital, to optimising, raising and investing.

“On the whole Australasian companies appear well positioned to pursue growth. Local businesses boast strong balance sheets, with debt to capital ratios remaining very low and the vast majority (85%) who believe corporate earnings are stable or improving,” says Browning.

Nearly a third (32%) of local companies are planning an acquisition in the next 12 months while 23% intend to make divestments.

“Although there has been a noticeably positive shift in overall confidence and outlook, organisations both in Australasia and globally have not accelerated their acquisition plans,” says Browning.

“This caution may be driven by lingering concerns of another false start on the road to global economic growth.”

“Is now the time for early movers and strategic buyers to gain a competitive advantage? If confidence continues to grow, M&A activity will follow and pent-up demand for growth will likely see a rush for assets. The second half of 2012 could be a busy time for transactions.”

Global capital flow into Asia Pacific continues

Higher growth markets in Asia Pacific continue to be the most preferred investment destination for companies, with 46% of global and 89% of Australasian respondents nominating it as the region in which they are most likely to invest outside their domestic market. Excluding Australia and New Zealand, the top four likely destinations for Australasian investment are China, India, Indonesia and Malaysia.

“In reality though, most investment by Australasian companies is in home markets. Many Australasian companies have invested across Asia and will continue to do so. However in a relative sense, local companies appear to be lagging their global peers in this regard,” says Browning.

“There may well now be a window for businesses with a clear growth strategy, who are rigorous in evaluating risk and astute in assessing investment opportunities, to gain a competitive advantage while others sit on the sidelines.”

Key findings (Australasia)
Economic outlook

  • 82% believe the global economy is stable or improving. This includes twice as many who believe it is improving – 30% now compared to 16% in October 2011
  • 89% believe the local economy is stable or improving, up from 70% six months ago
  • 63% plan to maintain their current workforce in the next 12 months and another 25% expect to create jobs and hire talent
Capital focus
  • 31% are focused on capital optimisation, up from 25% in October
  • 25% are focused on capital raising up from 15%
  • 31% are focused on investing up from 30%
  • 13% are focused on capital preservation, down from 30%
Growth outlook
  • 41% are focused on growth, down from 51% in October
  • 49% are focused on maintaining stability, up from 42%
  • 10% are focused on survival, up from 7%
  • 27% are negative about the current local regulatory environment supporting growth, up from 20%
Capital raising & financing
  • 73% of Australian respondents have debt to capital ratios of less than 25%
  • 62% of Australian respondents say cash is the likely primary source of deal financing in the next 12 months, with debt the main source for 21% and equity the main source for 17%
  • 23% of Australian companies need to re-finance in the next 12 months, on par with October M&A outlook
M&A outlook
  • 32% of Australasian companies plan to pursue acquisitions in the next 12 months, down from 41% in October
  • Asia Pacific is the number one preferred international region for investment for both Australasian companies (89%, up from 72%) and global companies (46%, down from 49%).
  • Outside domestic markets, Australasian companies cite China, India, Indonesia and Malaysia as the top four preferred investment destinations.
  • 23% intend to make divestments in the next 12 months, slightly down from 25%
* Australia and New Zealand

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Contact details:

Megan Ball
EY Australia
Tel: + 61 2 8295 6427