Canadian companies focused on low-risk growth strategies
TORONTO, Oct. 15, 2014 /CNW/ - According to EY's latest Canadian Capital Confidence Barometer, a full 98% of executives surveyed in Canada believe both the Canadian and global economies are either stable or improving. Still, only 24% expect their company to pursue an acquisition in the next 12 months. That's down from 41% in April, and the lowest level in the last two years.
"Despite quite a high level of confidence in the economy, Canadian executives are still showing caution around M&A opportunities," says Tony Ianni, Transaction Advisory Services Partner at EY. "The results of our survey tell us that while executives do expect the market to be generally busy, they're still not ready to pull the trigger themselves on those opportunities."
Still, Ianni says those companies that are pursuing M&A opportunities have never felt better about both the number and quality of transactions, and the likelihood of getting their transactions closed.
"We're also seeing continued discipline around debt-to-capital ratios," adds Ianni. "In fact, 59% of our survey respondents reported a debt to capital ratio of less than 25% – a marked improvement from what they reported in April."
Correspondingly, 57% of Canadian executives surveyed said the main drivers of their M&A strategy were to reduce costs and improve margins.
"Companies planning a merger or acquisition are very much focused on complementing their current business model," says Ianni. "They're looking to grow their core business, more so than embark on disruptive or defensive deals."
Other key findings of EY's survey include:
- 60% expect the Canadian M&A market to stay the same over the next 12 months (up from 45% in April); 38% say it will improve (down from 49% in April)
- 70% of Canadian companies looking to complete a transaction in the next 12 months indicate that the transactions they are considering are below $250 million in value – a bounce back to the more traditional levels we have seen in Canada
- 38% are looking to move into new geographical markets (the top investment destinations for Canadians are India, Brazil, US, China and the UK)
- 71% expect to create jobs in the next 12 months – up significantly from only 26% in April
"Canadian executives are still taking a slow and steady approach to growth," says Ianni. "While they're generally steering clear of higher risk strategies, the good news is their confidence in the mechanics of the Canadian deal market is strong. In time, we'd expect that to eventually lead to an increase in deal activity."
About the survey
EY's Capital Confidence Barometer is a survey of more than 1,600 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. This is the eleventh twice-yearly Barometer in the series, which began in November 2009.
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SOURCE: EY (Ernst & Young)