Transaction Advisory Services

Capital Confidence Barometer

About the Capital Confidence Barometer

Started in 2009, the Ernst & Young Capital Confidence Barometer is a survey of more than 1000 senior executives from large companies around the world and across industry sectors. Its objective is to gauge corporate confidence in the economic outlook, understand boardroom priorities over the next 12 months, and identify the emerging capital practices that will distinguish those companies that will build competitive advantage as the global economy evolves. The survey is conducted in association with the Economist Intelligence Unit.

Spring 2012: UK results

Eurozone volatility and low GDP growth lead UK corporates to batten down the hatches rather than splashing cash on M&A

• Over 90% of UK corporates admit Eurozone crisis has impacted their business
• Only 20% of corporates consider opportunistic M&A
• Corporates stock piling cash but few will spend on M&A
• Divestments high on the agenda for UK corporates

Read our press release.

Autumn 2011

Global results

Global M&A activity and volatility coexist

Our fifth Capital Confidence Barometer predicts a new paradigm: Corporate M&A activity and extreme market volatility coexisting. There is a surprisingly stable appetite to do deals over the next 12 months as top global corporates remain resilient to the market turbulence.

Leading corporates have spent three years focusing on reducing financial risk, operational fitness and learning to live with volatility:

• Balance sheets are stronger with less leverage.
• Companies have re-financed to improve their capital structures, reduced interest costs and extended maturities.
• Many companies can draw upon cash war chests.
• Earnings growth outlook is positive.

UK results

With UK economic growth expectations lagging behind global averages and an expectation of further volatility as a result of the sovereign debt crisis in the Eurozone, UK corporates are looking to M&A activity, particularly in the emerging markets, to drive profitability and value creation.

The majority of UK respondents (52%) are planning acquisitions in the next 12 months, the highest proportion since the inception of the Barometer and considerably higher than the global average of 41%.

UK corporates have strengthened their balance sheets and reduced their financial risk as a result of massive deleveraging, allowing them to consider and plan for future M&A activity. With improved capital structures, a high proportion (56%) have identified excess working capital of an acquired company as a source of funding for deals, with less than a third planning to use debt to fund transactions.

The willingness of companies to divest assets is another of the key drivers to deal market activity, with 34% of UK companies indicating that they expect to make strategic divestments in the coming year.

The five most attractive countries where UK businesses would consider making outbound investments are China, Brazil, US, India and Germany. However, the greatest region for actual British investment was its traditional business counterpart Western Europe.

Some of the biggest barriers to growth as identified by respondents in the UK were financial reform and tax policies. The lack of clarity in finding a solution to the sovereign debt crisis in the Eurozone will also be a major factor.