Global executives predicting well-priced deals, less competition
TORONTO, Dec. 1 /CNW/ - A new global Ernst & Young survey finds the stage is set for mergers and acquisitions activity to heat up, with 57% of respondents classifying the current M&A environment as favourable for their businesses.
"History has shown us that the period following a downturn often polarizes markets, as some companies struggle to keep up with those moving full-steam ahead," says Tony Ianni, Leader of Ernst & Young's Mergers & Acquisitions Practice. "We expect Canada will be no exception, particularly with respect to oil and gas, and oilfield services in Alberta and Saskatchewan, as well as the core manufacturing belt in Ontario."
But despite the number of distressed and well-priced assets, many feel restricted from realizing acquisition opportunities. Obstacles identified include: valuation uncertainty and complexity (65%); insufficient financing (62%); investor caution (60%); and increased transaction risk (57%).
"We're seeing businesses place an increased emphasis on capital in order to leverage these appealing but limited time prospects," says Ianni. "Those who have the organizational flexibility to adapt and respond as the market changes will be able to take advantage of opportunities - those who don't will miss them, or become targets of a takeover."
The strength of Canada's banking sector and the return of private equity is slowly starting to make financing for small and mid-size transactions more readily available. However, only 36% of businesses feel they are positioned to act quickly and exploit acquisition opportunities. This implies that a small number of businesses will be able to acquire assets with limited competition for at least the next six months.
Ianni says readiness to execute in a distressed situation is key to gaining a competitive advantage. "Companies should conduct ongoing proactive screening of distressed targets and establish corporate governance tailored for accelerated acquisitions. They should also look at joint venture, strategic alliance and alternative deal structures to more effectively manage scarce capital and increased risk."
On the positive side, many companies are already taking action to become more nimble. In response to scarcity of capital from traditional sources, 24% of those companies looking to divest assets cite their ability to fund new investments or invest cash as the main reason for the sale.
Other survey highlights from Why capital matters include the following:
- Twenty-five percent of global businesses are likely or highly likely
to acquire in the next six months, rising to 33% in the next 12
months and up to 41% over the next 12 to 24 months.
- Forty-five percent of executives expect to see an increase in the
number of distressed asset sales in the next 12 months.
- Sixty-three percent of respondents saw the most attractive
acquisition opportunities within their own national or domestic
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