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Australasian Capital Confidence Barometer, October 2011: Cashed up but cautious to capitalise? - EY - Australia

Australasian Capital Confidence Barometer, October 2011

Cashed up but cautious to capitalise?

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It will be the fittest and fastest businesses that seize opportunities in these uncertain times.

The Australasian story: despite a positive growth outlook, Australian and New Zealand companies are taking a generally cautious approach, shifting their focus from investing and optimising capital, to preserving relatively high levels of cash.

Will this cautious approach to transactions mean Australasian corporates run the risk of falling behind their global counterparts, missing out on valuable opportunities?

Recent months have seen a return to volatility not seen since the early days of the economic crisis. The US credit rating downgrade, debt crisis in the Eurozone and weakening economic data from around the world sparked dramatic market activity, driving a re-pricing of risk.

These events have also impacted Australasian companies – despite our sound local economic fundamentals. The capital confidence of Australasian companies has fallen, giving our local corporates a more conservative outlook on global growth than their global counterparts.

An overly cautious approach?

Despite the challenges that lie ahead, we wonder whether that this may be an overly cautious approach – especially considering some positive emerging trends in the localM&A environment and given the long term positive outlook for our local economies.

This barometer found companies are well capitalised and are looking for growth. Local banks are open for business and executives are more willing to take on debt to fund opportunities.

The buyer/seller price gap has narrowed. In April, almost two thirds of local executives were worried about the price gap, however by August, concern over this issue had fallen to 39%.

The outlook for asset prices is also upbeat with 63% of Australasian respondents saying that prices will remain stable and 19% actually expect them to increase. This indicates that there is a general willingness in the market to pay higher prices for available assets.

Increased divestments

Increased divestment activity demonstrates confidence in the M&A environment. Twenty five percent of Australasian corporates are planning to divest over the next 12 months, which is the highest peak for Australasia since the GFC, and is likely to stimulate future transaction activity.

Slight decline in acquisitions

This barometer saw a small decline in the number of Australasian corporates planning to pursue acquisitions, with 41% planning transactions in the next 12 months, down from 46% in April. Despite this dip, this is still a healthy figure and we are now aligned with global M&A expected levels which increased 3%.

Assuming the majority of economists have got it right, and the medium to long term economic outlook for Global and Australasian growth remains positive, companies that fail to take advantage of transaction opportunities that currently exist may risk falling behind their peers.

Pip McCrostie Pip McCrostie

Global Vice Chair,
Transaction Advisory
Graeme Browning Graeme Browning

Oceania Managing Partner,
Transaction Advisory

In the following pages, we look closer at the study across the following topics:

About this survey

EY's Capital Confidence Barometer is a regular survey of senior executives from large companies around the world conducted by the Economist Intelligence Unit (EIU).

Our panel, the "EY 1,000" is comprised of selected EY clients and contacts and regular EIU contributors.

Profile of respondents
  • Panel of over 1,000 executives surveyed in February and March 2011.
  • 97 respondents from Australasia.
  • Cross-section of respondents from over 40 industry sectors.
  • 559 CEO, CFO and other C-level respondents.

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