April 2014

US Capital Confidence Barometer

Staging for growth

Key findings

M&A: Market shifting toward larger deals

Economic outlook: Resilient confidence takes hold in US

Access to capital: A penchant for leverage

Growth strategies: Preparing for the next wave

EY - US Capital Confidence Barometer
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As confidence improves, companies are continuing to take advantage of strong debt markets and optimizing for a longer-term M&A wave.

As valuation gaps contract, fundamentals improve and the economy finds its footing, the drive toward M&A will likely intensify.

Our latest US Capital Confidence Barometer finds executives more bullish on the economy and the markets than they have been in years. Two-thirds of companies are positive on the economy, with sentiment on the domestic economy picking up just in the last six months. Deal pipelines are growing, and executives express strong confidence in market fundamentals.

Our survey reveals:

Key findings

66% see the US economy improving

92% view credit availability as stable or improving

53% expect US deal volumes to improve

29% plan to pursue an acquisition

37% expect to pursue deals greater than US$500m in value

31% expect deal pipelines to increase

Several factors are improving US sentiment. At the policy level, we see stability in Washington and central banks gradually repositioning for recovery. At the boardroom level, shareholder activism and pressure to put companies’ stockpiles of cash to work are also having a stimulating impact.

On the other hand, this Barometer also finds US dealmaking intentions down from six months ago and flat with a year ago. It also shows a shift in companies’ Capital Agenda focus — away from investing in favor of raising capital and optimizing performance.

“Kicking the tires” on potential acquisitions

Normally this holding pattern might suggest executives are pulling in their horns, but we don’t believe these survey results suggest a waning M&A recovery. Their broader optimism on the health of the markets suggests they have been actually “kicking the tires” on potential acquisitions, and they have concluded that the inorganic growth they require will demand more preparatory work.

US companies, in short, are staging for growth — taking on debt at historically favorable terms, optimizing their balance sheets and reshaping for the future. In C-suites across America, memories are long, and dealmakers have been wary to pursue deals until they see evidence of a full-blown recovery. Now, as valuation gaps contract, fundamentals improve and the economy finds its footing, the drive toward M&A will likely intensify. In our new post-crisis environment, a comeback in the deal markets may be protracted — but whenever it arrives, US corporates will be ready for it.

—Richard Jeanneret, EY Americas Vice Chair, Transaction Advisory Services