The outlook for M&A activity is getting brighter, and the increasing number of companies planning to acquire and divest in the next six months should increase deal activity.
Our fourth Capital Confidence Barometer reports a surge in confidence in the global economic outlook. Confidence in the global economy has almost doubled in the last six months. Leading companies are now focusing on growth instead of defensive measures.
Capital market conditions remain strong and confidence in many local economies and industries also remains high.
However, more recent external factors such as political instability in the Middle East and rising inflation and natural disasters are creating longer term uncertainty. This is leading to mixed messages for M&A.
In the short term M&A appetite is up, with one third of those surveyed looking for a new acquisition in the next six months. Longer term the appetite for M&A declines — albeit from a relatively robust level — as companies identify organic growth as their No.1 priority.
The growing valuation gap between buyers and sellers could also constrain M&A appetite. We should see increased levels of M&A in 2011 — but further external shocks may prompt boards to rein in acquisition plans.
Our latest findings again underline one critical point: how companies manage their capital agenda today will define their competitive position tomorrow. How they raise, invest, optimize and preserve their capital is vital to their future success.
The Barometer clearly shows that many leading companies are in a strong position to determine their strategic course, while others are struggling to respond to current market challenges.
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Global Vice Chair,
Transaction Advisory Services.
- Global confidence surge — the financial crisis is over, or the end is in sight
- Capital market conditions are at a post-crisis high, and leading companies have refinanced
- Newfound confidence is resulting in boards focusing on growth
- Short-term M&A activity is set to increase but remains well below pre-crisis levels
- The No.1 strategic priority for companies remains organic growth
- Global confidence is returning. However, any sustained upturn is likely to be determined by external factors: rising inflation, continued political instability in the Middle East, austerity and tax regimes and the impact of natural disasters on supply chains
- Leading companies have completed refinancing, but for those who haven't the need is now urgent
- The survey shows that boardrooms are cautiously focusing on growth in light of the above factors
- There are mixed implications for M&A. At least in the short term, the outlook for M&A activity is getting brighter, and the increasing number of companies planning to acquire and divest in the next six months should increase deal activity. Targets are likely to be emerging market companies in the automotive, consumer products, mining and pharmaceutical sectors
- Longer term, if the external factors stabilize or diminish, we may see a resurgence in M&A
- In the current market the highest priority in the boardroom remains organic growth
We take a closer look at the survey results across the following topics: