Mergers and acquisitions to pick up as economy improves: report
October, 29th 2014
A new survey suggests corporate takeover activity will increase markedly as big businesses start to feel more confident about the Australian economy.
The survey from accounting and advisory group EY canvassed 1,600 senior executives across 54 countries, including Australia, and found 66 per cent want to make acquisitions in the next year compared with just 32 per cent six months ago.
EY's Oceania transaction leader Graeme Browning said companies are now more willing to spend the cash they have been hoarding.
"For M and A [merger and acquisition] the important thing is it's stable and predictable, so people are not concerned about major changes in the Australian economy, they're positive about employment growth too over the long term," he said.
"These are all essential ingredients for companies to have confidence to invest over this three-to-five-year period."
The survey also suggests big corporations are now becoming more willing to take on debt to fund takeovers.
Mr Browning noted that companies feel confident enough to return to debt markets now that the global financial crisis has passed.
"That's a change over these last five years, I think it will be at modest levels, but I think it will be noticeable," he said.
"The other interesting thing that our respondents told us it that they are also tapping in to alternative financing sources - so super funds, pension funds, sovereign wealth funds, hedge funds - to add to their other sources."
The survey shows takeover activity is set to increase across most sectors of the economy.
However, EY is expecting a particular wave of consolidation in mining and mining-related businesses in the next year.
A lot of that activity is expected to occur in the resources sector as smaller companies fall prey to those with stronger balance sheets.
Mr Browning observed that there is a high degree of stress in parts of the sector.
"It's the most proactive companies that are the ones that are moving now while they may be able to dictate the terms of their future," he said.
"What will be interesting over the next 12 months is the ones that are less able to move now. They will have less influence over their futures."