Canadian Manufacturing

Waning confidence has Canadian businesses mulling mergers, acquisitons

The number of companies considering deals is up from 24 per cent in October 2014, according to Ernst & Young

TORONTO—Despite sagging economic confidence, 72 per cent of Canadian businesses say they’re planning at least one deal in the next 12 months, according to Ernst & Young’s (EY) newest Canadian Capital Confidence Barometer.

EY says that figure is up from 24 per cent in October.

The report also says confidence in the Canadian economy is down significantly compared to six months earlier.

“Many Canadian companies are to looking to mergers and acquisitions to address challenges in their existing business,” says Doug Jenkinson, a partner in EY’s Transaction Advisory Services practice. “While Canadian executives aren’t overly optimistic about our country’s economy, that sentiment isn’t holding them back when it comes to looking at deals. Even in Alberta’s distressed oilpatch, we’re still seeing deals get done, and there are surely opportunities for those companies that are strategic.”

According to the survey, all of the Canadian respondents saw the global economy as either stable or improving. But when looking at our own country’s economy, while 57 per cent see it as stable, while 13 per cent thought it was improving.

Pip McCrostie, EY’s Global Vice-Chair, Transaction Advisory Services, said the low price of oil and currency fluctuations are viewed as a challenge, elevating the need for cost reduction in the short term for many businesses.

“This volatility is also driving M&A momentum through increased consolidation and executives searching for growth outside their domestic market,” said McCrostie.

In Canada, companies report they’re looking south for investment opportunities—to the U.S. (as always), but also to South America, where Columbia, Chile and Argentina are all in the top five investment destinations. This is consistent with Canada’s focus on the natural resources sector.

“Canadian companies are also looking right at home for investment opportunities,” says Jenkinson. “For the first time, Canada appears on the top five investment destinations.”

Other highlights from the survey include:

91 per cent expect to complete more deals than in the prior year
88 per cent say their largest deal in the next 12 months will be $250 illion or less
91 per cent are focused on cross border M&A in the next 12 months

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