U.S. appetite for M&A grows

For the first time in two years, U.S. companies are more inclined to pursue deals than their Canadian counterparts.

Only 33% of Canadian companies intend to pursue acquisitions within the next 12 months, compared to 41% in the U.S., according to EY’s Canadian Capital Confidence Barometer.

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“There’s still an interesting ‘confidence paradox’ going on here. Canadian executives remain confident in the state of the global economy, and even more confident in the economy here at home,” says Tony Ianni, Transaction Advisory Services partner at EY. “But that confidence still isn’t translating into an uptick in transaction activity.”

Accordingly, Canadian executives’ confidence in the local economy continues to rise. Ninety-eight percent of respondents think the Canadian economy is stable or improving, up from 79% a year ago, and 85% just six months ago. But deals remain comparatively elusive.

“A lot of things are fueling this paradox. Despite increasing confidence, Canadian companies either seem to be waiting for more favourable economic conditions, for the right deal or, in some cases, for someone else to make the first move,” says Ianni.

Still, while deal volume may be down, the survey found a significant increase in the number of respondents who expect an increase in the actual size of deals that do go ahead. That’s quite a shift from EY’s findings last spring.

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“Nineteen percent of executives said they expect deals over US$1 billion,” says Ianni. “Just six months ago, no respondents expected any deals of that magnitude.”

Ianni says companies’ willingness to use debt and equity to fund deals is consistent with the perception that deals will shift away from smaller transactions.

Despite less interest in making deals, Canadian executives’ increased confidence in the local economy is driving other positive growth. Forty-seven per cent of companies say they’ll create jobs or hire talent in the next 12 months, up from 37% six months ago. And only 8% said they would be reducing their workforce, down 5% from April 2013.

Other key findings include:

• 81% view credit availability as stable or improving
• 63% consider growth their primary focus
• 44% have a greater focus on investing in emerging markets
• 48% expect Canadian deal volumes to improve
• 61% plan to use debt and equity as their primary source of deal funding

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Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.