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Australia is set for a surge in merger and acquisition activity as economic optimism hits a five-year high, according to EY’s latest six-monthly Australasia Capital Confidence Barometer.
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Stage is set for a surge in M&A activity
29 April 2014
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The report, based on a global survey of more than 1,600 executives in 54 countries, including 136 in Australia and New Zealand, shows corporate appetite for debt is returning, confidence in corporate earnings is up and the number of companies confident about the economic outlook is at a five-year high.
EY Oceania transaction advisory services leader Graeme Browning said the survey results indicate that the essential ingredients for a lift in merger and acquisition activity are there, and that buyers and sellers alike should be confident about being able to get deals done.
“Credit is available, corporate appetite for debt is returning and respondents expect the valuation gap to narrow – we haven’t seen all these ingredients come together in a long time,” he said.
Mr Browing said the survey also revealed companies are now more likely to use debt to finance deals than this time last year.
“The number of companies looking to use debt as their primary source for deal financing has more than doubled from 12 months ago. Gearing is expected to rise but to remain well within acceptable levels,” he said.
The report also showed economic optimism is at a five-year high, with two thirds (66 per cent) of executives in Australia and New Zealand saying the local economy is improving – up from a low of 41 per cent in October 2012. Correspondingly, 70 per cent believe the global economy is also improving.
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Confidence in specific deal metrics has grown strongly in the past six months with more respondents confident in the number of acquisition opportunities (57 per cent, up from 31 per cent); the quality of acquisition opportunities (37 per cent, up from 27 per cent); and the likelihood of closing acquisitions (31 per cent, up from 20 per cent).
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