Canadians seeking fewer M&As despite improved capital market conditions: Ernst & Young
(Toronto – 4 November 2010) Despite the return of favourable conditions for mergers and acquisitions (M&As), fewer Canadian businesses are looking to execute transactions in the near future, according to a new survey by Ernst & Young.
Only 9% of Canadian survey respondents report being highly likely to acquire in the short term, while back in April 2010, 36% of respondents said they were highly likely to undertake an acquisition in the next six months. The appetite for deals has also fallen globally, with a quarter fewer (29%) actively seeking acquisition targets, a stark contrast to the 38% six months ago.
“Our last M&A pulse check predicted the recent spate of large deals that has taken place, but now the appetite for deals has fallen,” said Tony Ianni, Leader of Ernst & Young’s national Mergers & Acquisitions practice. “With a smaller number of assets available in the market, and as well-capitalized companies sit on their growing cash reserves, the pieces are in place for opportunistic and hostile approaches.”
Ernst & Young’s third biannual Capital Confidence Barometer finds that economic concerns and volatility are undermining confidence in the global economy and reducing the appetite for M&As.
Over the last year, boards have responded to ongoing uncertainty by improving their ability to respond quickly to opportunities that arise. More than half of Canadian respondents (60%) feel well positioned to execute an acquisition at short notice, but are reluctant to commit to a deal.
Boardrooms remain cautious due to investor concerns, regulatory and political changes — driving a greater focus on organic growth and performance improvement. In fact, 71% of Canadian respondents are now focused on organic growth as their capital allocation priority, through restructuring and performance improvement, compared to 58% six months ago. While Canadians are not reporting much of a change in credit conditions, access to finance is not a problem according to 40% of respondents (23% in April 2010).
“Over the next 12 months, those with excess capital are likely to view the M&A market opportunistically but continue to focus on organic growth,” said Ianni. “With capital taking longer to secure, those who have already secured new financing or growth capital will be at advantage when M&A opportunities present themselves.”
While 31% of global companies are focused on emerging markets to position themselves for future growth, only 13% of Canadian respondents said they were likely to undertake or seriously consider an emerging market acquisition in the next six months. However, Canadian respondents indicated they are now more likely to carry out joint ventures or alliances (24%) versus a smaller number (8%) in April.
The survey finds that there will be opportunities to make game-changing strategic moves. While the risks may be high, so too are the rewards. How Canadian companies manage their capital today will ultimately define their competitive position tomorrow.
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