Companies around the world are still reluctant to go on the acquisition trail even though they are becoming are more confident about the global economy, a survey found Monday.
In its half-yearly assessment of the intentions of big companies, accounting and consultancy firm Ernst & Young said the growing optimism has yet to be translated into more investment or corporate deal-making. The survey was based on responses from 1,600 senior executives in 50 countries, 85% of which had annual revenues of more than $500 million.
Ernst & Young found that 51% of the executives questioned think the global economy is improving — more than double the level recorded last October. Under normal circumstances, that would normally translate into companies feeling more confident to splash out on mergers and acquisitions. But the survey only found that 29% of companies expect to do a deal in the coming year.
When asked how they would expand the business if they had enough cash, 45% said they would sooner invest in-house than buy up another organization.
“The current situation can best be described as a ‘confidence paradox’,” said Pip McCrostie, global head of transactions at the firm. “In the past few years, global M&A volumes have de-coupled from historical indicators .... Executives are continuing to wait for a sustained recovery before engaging in M&A.”
Despite the occasional big deal, such as the merger of commodities trading group Glencore International PLC and mining company Xstrata PLC and the $25.5 billion bid for Sprint Nextel Corp. by satellite TV company Dish Network Corp, the amount and value of corporate deals are still down on the levels that existed before the start of the financial crisis in 2007-2008.
The crisis paved the way for the deepest global recession since World War II, that saw bankruptcies rise and turned many executives risk-averse — pushing them to reduce their debt levels and increase the amount of cash they held.
The recovery since the start of the crisis has been patchy with many regions, including much of Europe and Japan, still struggling to show any economic growth.
Even so, there are some bright spots, according to the Ernst & Young survey. In Brazil, for example, the firm found that 45% of executives there plan to make a deal over the coming year. That compares with 29% in the U.S., 27% in the UK and 12% in Russia.
The survey found that China remains the number one investment destination, followed by India and Brazil. The U.S., the world’s largest economy, is also in the top five along with Canada.
Among sectors, the survey found that technology, automotive, life sciences, consumer products and oil and gas, remain the most likely to see deal activity, with sectors such as mining and utilities bringing up the rear.