Europe key area of interest
Forty-four per cent of Canadian companies expect to acquire in the next 12 months, down slightly from 48 per cent in April, but significantly more than only 25 per cent of their global counterparts, found a survey by Ernst & Young.
"Canadian firms are looking to acquisitions to gain share in existing markets and, to a lesser extent, to gain share in new markets," said Tony Ianni, transaction advisory services partner at Ernst & Young. "Canadian companies are also more inclined to look at mergers and acquisitions as a means of taking advantage of the euro zone crisis, far more so than survey respondents from other countries."
While many companies around the world — including the United States — are more focused on cost reductions and other areas of managing risk, 35 per cent of Canadian respondents are poised to take advantage of Europe's economic uncertainty by engaging in opportunistic mergers and acquisitions. Only 14 per cent of global respondents share this sentiment, found the survey of 1,500 senior executives across the globe.
"While the appetite for M&A deals hasn't cooled off in Canada as it has in other areas, we are expecting that the size of deals will not be as large," said Ianni. "Ninety per cent of Canadian executives surveyed felt that any deals over the next year would be less than US$500 million."
Meanwhile, as interest rates continue to remain at historic lows, Canadian companies are more likely than companies overseas to optimize their capital structure and reduce interest costs, found the survey.
"One area of continuing concern for Canadian companies is the availability of credit," said Ianni. "While the strength of Canadian banks was not shaken as it was at some institutions around the world, lenders here are taking a risk-averse approach, which, while not affecting larger public companies, has impacted smaller, private companies since the credit crisis in 2008."
With a higher percentage of private companies among Canadian respondents, credit availability is reported as having declined by 45 per cent of executives surveyed, up substantially from 22 per cent in April.
"Efficiency and cost controls are still the main drivers behind a lot of Canadian business decisions, and while there is definitely a heightened sense of caution among Canadian companies, there is also a need to stay flexible in order to take advantage of opportunities when the global recovery takes hold,” said Ianni.
