Top executives of canadian companies are more optimistic about the prospect of acquiring competitors and more aggressive about pursuing these opportunities than their peers around the world, according to a recent survey of international corporations.
Overall, according to Ernst & Young LLP’s latest Global Capital Confidence Barometer, 41% of top international companies expect to make an acquisition over the next year, despite the current debt and currency crisis in Europe and fears of a renewed recession in the U.S. A total of 46 Canadian firms took part in the survey among the 1,000 international companies.
The number was even higher here at home, with 45% of Canadian companies stating that they plan to make an acquisition next year, a jump from 32% in an April poll that had been conducted by E&Y.
What is fuelling the optimistic attitude in Canada? For starters, fewer psychological and physical scars from the most recent recession. Canadian firms, says Tony Ianni, partner in E&Y’s transaction advisory services practice in Toronto, “have stronger balance sheets, better access to capital, a better perspective on employment levels in their own business, more positive outlet around the local economy and generally feel there is less regulatory risk to their businesses.”
Add to that optimistic mix “low interest rates, a strong Canadian dollar and very favourable regulatory environment,” he adds, and the most recent survey found that 66% of respondents say they see the Canadian economy as being stable or improving. “We’re operating in a local atmosphere that’s geared to deal-making.”
Canadian optimism was most pronounced in the resources sector of the economy, which had bounced back spectacularly from the recession, thanks to strong demand from developing countries such as China and India.
Confidence was particularly high among firms in the mining and metals, utilities, and oil and gas industries.
A relatively mild recession in Canada and an attentiveness to the balance sheet has shown up in the survey results. The latest E&Y survey found that 82% of Canadian companies have debt/capital ratios of less than 25%, vs 61% for international companies surveyed.
The outlook for corporate earnings is “relatively strong,” according to the survey report, with 47% of respondents confident that earnings will be at least stable, while a further third believe earnings potential is positive. Funding conditions also have improved during the economic recovery, with 68% of survey respondents saying capital market conditions are at the very least stable.
The survey results showed that almost half of respondents are concentrating on growth in the next year, with only 7% currently focused on survival — the lowest proportion since the survey was initiated out in 2009.
Although Canadian companies are feeling confident, Canada is not necessarily the place to be in the eyes of most of the global firms taking part in the latest survey, which found the markets regarded as most attractive for investment to be China, India, Brazil, the U.S. and Australia. And, outside the highly touted BRIC countries of Brazil, Russia, India and China, countries such as Malaysia, Mexico and Argentina proved to be the most popular emerging-markets destinations for investment.
More than a third of respondents said their motivation for acquisition activity was to gain share in a new market.
Generally, the gaze of Canadian executives is southward rather than east- or westward. “From a Canadian perspective, the country that stands out is [the] U.S. marketplace,” says Ianni. “Apart from the U.S., the other countries that stand out are China, India and Singapore.
“Certainly,” he continues, “what we saw in the survey was people feeling good about the economy, about the Canadian dollar and feeling more robust around the opportunity to jump into other markets.”
Even with signs of slowing global economic growth and the sovereign-debt crisis whipsawing stock markets at the time of the survey, executives beyond Canada’s borders were generally an optimistic bunch: 63% of respondents felt that the global economy is at least stable, with the optimism again high in commodities sectors such as power and utilities, oil and gas, and metals and mining.
“There is a new paradigm, with [mergers and acquisitions] activity and market volatility now able to co-exist,” says Pip McCrostie, E&Y’s global vice chairwoman of transaction advisory services in London. “Currently, leading companies are shrugging off continued market upheaval and focusing on growth and M&A. For them, this is not 2008 all over again.
“[These companies] have spent the past three years reducing the financial risk on their balance sheet,” adds McCrostie, “and taking tough efficiency measures needed to strengthen their positions, which helps them manage in volatile times.” IE