Deal volumes set to rise:
Monday 29 April 2013 — Australian M&A activity is likely to steadily rise over the next 12 months, according to the results of EY’s latest six-monthly Capital Confidence Barometer.
Released today, the report is based on a survey of almost 1,600 executives from around the world, including 131 respondents from Australasia*, undertaken during February and March this year.
The confidence of Australasian companies in both the global and local economies has lifted notably since the last survey in October 2012, with 90% now saying the local economy is stable or improving, up from 82%. Similarly, 89% believe the global economy is stable or improving, up from 74%.
Similarly there has been a significant lift in corporate confidence across a range of indicators including economic growth, corporate earnings, credit availability employment growth, equity valuations and market stability.
EY’s Transaction Advisory Services Leader for Oceania, Graeme Browning, says the rebound in sentiment is mirrored at the global level and paves the way for a steady rise in deal activity.
“Corporates are once again focused on growth. The winners will be those who are strategically ready, who think laterally about deals, domestically and internationally. They need to be ready to move quickly when the opportunity presents and then deliver value post-deal by realising the expected synergies,” he says.
Browning says while 70% of Australasian respondents believe local deal volumes will be higher this year, actual acquisition intentions lag, with 24% saying they expect to acquire in the next 12 months, up from 20% in October.
“The tough past few years have made many corporates cautious despite the improving sentiment and this is slowing the pace of deals. Additionally some may be waiting until after the Federal Government election in September for more certainty and stability in the political landscape,” he says.
“However with the focus firmly back on growth, pressure will be mounting on companies to deliver a better return on capital and in a modest growth environment this calls for more strategic transactions.”
“Organisations will and should remain disciplined in evaluating transactions, but a prudent approach shouldn’t be an impediment to getting the right deals done and we expect to see cashed-up corporates increasingly start to back bolder growth options. If they don’t, they will be left behind.”
Key findings (Australasia)
- 89% believe the global economy is stable or improving, up from 74% in October 2012
- 90%believe the local economy is stable or improving, up from 82%
- 64% are confident about corporate earnings, up from 28%
- 44% are looking to create jobs in the next 12 months, up from 21%
- 42% say the potential for slowing growth in emerging markets is the biggest economic risk over the next 6-12 months
- 63% say capital allocation is now receiving more focus by the Board compared to 49% a year ago
- 51% are focused on growth, up from 37% in October 2012
- 38% are focused on organic growth investments
- 34% of Australasian organisations say investing in new geographic markets is now receiving more focus on the boardroom agenda, compared to 56% for India, 46% for Singapore, and 39% for China, US and Japan
- 70% think local M&A volumes will improve in the next 12 months
- 24% are looking to acquire assets in the next 12 months, up from 20%
- 54% are confident about the number of acquisition opportunities, up from 34%
- 46% are confident about the quality of acquisition opportunities, up from 24%
- 88% say the valuation gap will stay the same or contract
Funding and capital raising
- 56% are confident about obtaining deal financing, up from 19% in October 2012
- 51% have a debt to capital ratio of less than 25% and a further 33% have a ratio less than 50%
- 56% are confident about credit availability, up from 19%
* Australasia – Australia and New Zealand
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