Forty-four percent of Canadian companies expect to pursue M&A in the next 12 months: Ernst & Young
TORONTO-- Canadians may be more pessimistic about the overall state of the global economy, but they're still pursuing growth opportunities, Ernst & Young says in a new survey. Forty-four percent of Canadian companies expect to acquire in the next 12 months, down slightly from 48% in April, but significantly more than only 25% of their global counterparts.
"Canadian firms are looking to acquisitions to gain share in existing markets and, to a lesser extent, to gain share in new markets," says Tony Ianni, Transaction Advisory Services Partner at Ernst & Young, a provider of assurance, tax, transaction and advisory services. "Canadian companies are also more inclined to look at mergers and acquisitions as a means of taking advantage of the Eurozone crisis, far more so than survey respondents from other countries."
While many companies around the world — including the U.S. — are more focused on cost reductions and other areas of managing risk, 35% of Canadian respondents are poised to take advantage of Europe's economic uncertainty by engaging in opportunistic M&A. Only 14% of global respondents share this sentiment.
"While the appetite for M&A deals hasn't cooled off in Canada as it has in other areas, we are expecting that the size of deals will not be as large," adds Ianni. "Ninety percent of Canadian executives surveyed felt that any deals over the next year would be less than US$500m."
Meanwhile, as interest rates continue to remain at historic lows, the survey finds that Canadian companies are more likely than companies overseas to optimize their capital structure and reduce interest costs.
"One area of continuing concern for Canadian companies is the availability of credit," warns Ianni. "While the strength of Canadian banks was not shaken as it was at some institutions around the world, lenders here are taking a risk-averse approach, which, while not affecting larger public companies, has impacted smaller, private companies since the credit crisis in 2008."
With a higher percentage of private companies among Canadian respondents, credit availability is reported as having declined by 45% of executives surveyed, up substantially from 22% in April.
"Efficiency and cost controls are still the main drivers behind a lot of Canadian business decisions, and while there is definitely a heightened sense of caution among Canadian companies, there is also a need to stay flexible in order to take advantage of opportunities when the global recovery takes hold," says Ianni.
Ernst & Young's Capital Confidence Barometer is a survey of more than 1,500 senior executives from large companies around the world and across industry sectors. The Barometer's objectives are 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 companies that build competitive advantage as the global economy continues to evolve.