M&A activity up as financing tightens

There is growing confidence about global mergers and acquisitions (M&A) over the next 12 months, with an estimated 33 per cent of businesses likely or highly likely to acquire other companies.

This was one of the key findings to emerge from an Ernst & Young survey of 500 senior executives from around the world.

The survey, entitled Why capital matters - building competitive advantage in uncertain times, also found that 63 per cent of respondents were expecting to see an acceleration of industry consolidation in the next 12 months, while 61 per cent expected the current market downturn to reveal the standout companies that are capable of exploiting acquisition opportunities.

"In the coming months, there is likely to be an increase in M&A activity as companies dispose of non-core, underperforming or distressed assets," said Ernst & Young global vice-chair, Transaction Advisory Services, Pip McCrostie. "Those in a position to buy will have the opportunity to capture market share and grow revenues in ways that were impossible two years ago."

Closer to home, we are already seeing that happen with ANZ's recent acquisition of ING's wealth management business, NAB's purchase of Aviva Australia, Westpac picking up St George and AMP's bid for AXA Asia Pacific.

But while respondents reported a rise in M&A confidence levels, the survey also found that 70 per cent of companies remained cautious about global economic recovery and believed that the broader economic malaise will continue beyond the next 12 months. And of that number, 40 per cent thought it would continue for more than two years.

Furthermore, in what could put a dampener on future M&A activity, 53 per cent of respondents believed that financing conditions would not return to mid-2007 levels for at least another three years - with 19 per cent saying it will be over five years or it may never return to that level.

"In 2010, finance will continue to be very difficult to secure. New options will need to be explored - from joint ventures to IPOs," McCrostie said. "In this complex and uncertain environment, a strong capital agenda will be central to boardroom planning and strategy. Leading businesses recognise the ability to respond quickly as the market changes."