It is Funny for SK “Uncertainty in the Global Market”
Rising confidence to drive takeover surge
A SHARP rebound in confidence among Australia's biggest businesses could cause a spike in mergers and acquisitions in the next six to 12 months, according to a survey by Ernst & Young. The accountant's six-monthly Capital Confidence Barometer reveals that 30 per cent of Australasian businesses -- twice as many as six months ago -- believe the global economy is improving. All up, 82 per cent consider the global economy to be either stable or improving. Ernst & Young partner Graeme Browning said the agenda for many companies had moved away from preserving capital to optimising, raising and investing. Mr Browning, who runs the firm's transaction advisory services for the Oceania region, said the improvement in confidence was most likely the result of the stabilisation of Europe's immediate debt problems and the emergence of positive economic data from the US.
"While confidence levels have significantly improved, it is interesting to reflect that global companies are more optimistic about the global economy than ours are," he said. "Australian companies appear positive but cautious." The report, based on a survey of more than 1500 executives worldwide, including 146 respondents from Australasia, says that 45 per cent of respondents believe the economy is modestly improving, and a further 7 per cent consider that it is strongly improving. The caution of local businesses is tempered by the number of Australasian respondents that signal intentions to pursue acquisitions. Of those surveyed, 32 per cent say they are considering acquisitions in the next 12 months, down from 41 per cent in October. "I think we won't see a material lift in acquisition intentions until companies see this expected improvement in the economic outlook actually occurs," Mr Browning said. "What they need is the confidence to do it. "That confidence will come from continued economic growth and outlook. "Assuming it does, then we will see a spike in activity." Some companies were obviously moving early, Mr Browning said, pointing to IAG's acquisitions in Vietnam and Malaysia as an example. Ernst & Young has acted as an adviser to the insurer. "It's probably seen as a relatively early mover," Mr Browning said. "For companies that have a well-considered acquisition strategy . . . moving now" could be really smart rather than when everyone else is trying to do it in six or 12 months. The survey also finds that Australian companies are typically carrying low gearing, with 73 per cent of respondents having debt-to-capital ratios of less than 25 per cent. Almost a quarter of respondents will need to refinance in the coming 12 months, but few are expecting to do so under duress.
