Consumer products, oil and gas and technology are the most likely to make acquisitions in the next 12 months.
In an unprecedented departure from the norm, the outlook for deal volumes is stable against a backdrop of significant short-term volatility.
Appetite to acquire has increased marginally, with 41% of respondents expecting to make acquisitions in the next 12 months compared with 38% in April 2011.
Many companies have learned to adapt and operate in a new and uncertain world. They can seize opportunities and plan to do so as many have reduced their financial risk and have the ability to take on more business risk.
Do you expect your company to pursue acquisitions over the next 12 months?
Favorable environment for deal making
The EY 1,000 are broadly comfortable with the deal environment in terms of quantity and quality of deals, as well as likelihood of closing deals.
Just as acquirers expect continued earnings growth, confidence in the earnings profile and quality of targets has risen. Dealmakers also see improvement in the quality of assets coming to market.
Please indicate your level of confidence in the following at the global level
Valuation levels could fuel activity
A further indicator of an encouraging deal market is the outlook for asset valuations. With 57% expecting asset prices to remain at current levels over the next 12 months, corporates may be inclined to deploy their cash reserves toward acquisitions.
What do you expect the price/valuation of assets to do over the next 12 months?
Increasing appetite for divestments
The willingness of companies to divest assets is an important element in the deal market. Twenty-six percent of respondents see divestments as likely or highly likely in their organization over the next 12 months, an increase of 30% since April 2011.
|30% || || |
increase in appetite for divestments in the next 12 months.
Do you expect your company to pursue divestments in the next 12 months?
The top three reasons for executing planned divestments are focusing on core assets, shedding underperforming business units and enhancing shareholder value.
What are the main drivers of your company’s planned divestment activity?
|37% || || |
of oil and gas and 33% of power and utilities companies are likely to make divestments in the next 12 months.
Emerging market opportunities fill deal pipelines
In an increasingly global economy, more than ever before, companies are pursuing emerging market investment opportunities. There is a desire to balance portfolios between emerging and developed markets to better position for growth and profitability.
The top three most attractive investment destinations are emerging markets â€” China, India and Brazil. The Asian emerging markets are among the most attractive due to their high growth potential, expanding domestic demand and resilience to current market volatility.
The US also remains attractive based on the size and diversity of its economy. Respondents anticipate buyers from China, UK and Canada will drive inbound US activity. Australia is ranked highly due to its inbound activity in the mining and metals sector.
What are the most likely countries where you will make outbound investments?
The most popular emerging market destinations beyond the BRICs are:
- South Africa
Deals driven by quest for growth
62% of respondents said the primary purpose for making acquisitions is to gain market share in new and existing markets. Less important factors include:
- Cost synergies
- Distribution network leverage
- Access to technology
What are the main drivers of your company’s planned acquisition in your chosen market or country?