April 2013

Confidence builds, transactions to follow

Australasian Capital Confidence Barometer

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About this survey

The Global Capital Confidence Barometer is a regular survey of senior executives from organisations around the world, conducted by the Economist Intelligence Unit (EIU). Our panel comprises select EY clients and contacts and regular EIU contributors. This snapshot of our findings gauges corporate confidence in the economic outlook, and it identifies boardroom trends and practices in the way organisations manage their Capital Agenda.

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Profile of respondents

  • Panel of almost 1,600 executives surveyed in February and March 2013
  • 131 respondents from Australasia
  • Companies from 50 countries
  • Respondents from more than 20 sectors
  • 794 CEO, CFO and other C-level respondents
  • 912 organisations would qualify for the Fortune 1000 based on revenue
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The Capital Agenda

Based around four dimensions, it helps companies consider their issues and challenges and understand their options to make more informed capital decisions.

  1. Preserving capital: reshaping the operational and capital base
  2. Optimising capital: driving cash and working capital and managing the portfolio of assets
  3. Raising capital: assessing future capital requirements and assessing funding sources
  4. Investing capital: strengthening investment appraisal and transaction execution
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Against a backdrop of greater stability in global markets and amidst the announcement of an upcoming Australian Federal Government election, 131 executives from Australia and New Zealand (Australasia), across all major sectors, took part in our 8th Global Capital Confidence Barometer.

The outlook for the global and local economies, capital markets and transaction landscape is considerably brighter than our previous two Barometers in April and October 2012, with executives clearly indicating that there is a renewed focus on growth.

Executives are now turning their attention back to capital allocation, moving the focus from cost reduction towards growth.

M&A levels remain modest but significantly better deal conditions, an improving economic outlook and an uptick in confidence will drive transaction volumes over the next 12 months.

Transaction outlook

The 8th Global Capital Confidence Barometer shows a remarkable lift in sentiment in the economic outlook by Australasian and global organisations.

As directors and boards acclimatise to stable or improving market conditions they are no longer seeking profit improvement through cost control. They are looking more broadly for opportunities to drive greater returns on capital and expect transaction activity to increase.

The winners will be those who are strategically ready, with geographical flexibility that can move quickly to execute transactions.

Well funded corporates will start to back bolder growth options, looking to make capital work harder. This will include capital investments as well as acquisitions.

Smaller organisations still experiencing liquidity issues will need to consider the full suite of debt and equity funding options or risk missing out on the next phase of growth.

Strategic transactions required

Corporates are acknowledging that meeting stakeholder expectations over the longer term may call for more strategic transactions in a modest global growth environment and deal volumes are expected to rise over the next 12 months.

As expected, organisations will remain disciplined in evaluating transactions, placing a premium on a thorough analysis of potential risks and exposures. However, an overly prudent approach shouldn’t become an impediment to getting the right deals done.

Valuation gap narrowing

At this stage of the cycle, Australasian organisations are expecting a further narrowing of the valuation gap, which should result in the increased likelihood of more transactions.

The winners will be those who are strategically ready, with geographical flexibility that can move quickly to execute transactions, delivering value through synergies.

Confidence is building in the market and by embedding M&A within the broader corporate strategy, organisations will be able drive the greatest value. Timing is always key, with diligent preparation and tactics the critical success factors.

About this survey
Profile of respondents
The Capital Agenda