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April-October 2014

Canadian Capital Confidence Barometer

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Staging for growth

Growth mandates — driven by increased confidence and credit availability — will spur M&A activity across mature and emerging markets.

The Canadian results of our latest Capital Confidence Barometer show that Canadian executives’ confidence in the economy continues to rise. Despite the recent global political instability, 79% of Canadian respondents feel that the global economy is improving. That represents a 24% increase since our last Barometer in October 2013 and one of the highest outlooks of all countries surveyed. While this optimism is causing Canadians to pursue more M&A activity in the next 12 months, optimizing capital by continuing to focus on cost reductions and efficiencies is the boardroom priority for the next 12 months.

With strong confidence in the economy, credit availability at an all-time high and an increased willingness to use debt to finance transactions, it is not surprising that 41% of Canadian executives expect to pursue an acquisition in the next year, up from 33% in October. This upward swing may signal a return to the more traditional level of acquisition interest we saw in our 2012 Barometers, when roughly 46% of companies expected to pursue an acquisition. And while Canadians expect an increase in the number of M&A opportunities, there is more confidence that the valuation gap between buyers and sellers will contract.

Canadian respondents also indicated they have a healthy pipeline of transaction opportunities. 66% of Canadian respondents have one to three deals in their pipeline and a surprising 34% are looking at four or more deals.

When looking at transaction opportunities, Canadian executives are still targeting emerging markets more than developed or mature markets. 56% of Canadian respondents are focusing their acquisition capital on emerging markets (they are evenly split at 28% for each of BRIC and non-BRIC markets), while 44% prefer developed or mature markets. This is a significant difference from global respondents—33% of whom are focused on developed or mature markets, with the balance focusing on emerging markets.

So while economic confidence at home and abroad is high, and other fundamentals remain sound, Canadians—like their global competitors—are increasingly internally focused on optimizing their businesses. This renewed emphasis, along with the modest rebound in M&A intentions, may signal a rebalancing of the capital agenda in the boardroom.

Tony Ianni, Partner, Transaction Advisory Services