M&A market stagnant despite economic confidence: survey

Canadian companies focused on low-risk growth strategies.

TORONTO — The number of companies expecting to pursue acquisition has hit its lowest level in the last two years despite high confidence levels in the global economy, according to EY’s latest Canadian Capital Confidence Barometer.

The results reveal a full 98% of executives surveyed believe both the Canadian and global economies are either stable or improving, but 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.

“The results of the 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,” says Tony Ianni, transaction advisory services Partner at EY.

Still, Ianni says those companies pursuing M&A opportunities have never felt better about both the number and quality of transactions, and the likelihood of getting their transactions closed.

Fifty-seven per cent of respondents 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 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 say the transactions they’re 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. “The good news is their confidence in the mechanics of the Canadian deal market is strong.”

EY’s Capital Confidence Barometer is a twice-yearly survey of more than 1,600 senior executives from large companies across industry sectors around the world to gauge corporate confidence.

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