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Crystal ball

2013 deal activity to remain near 10-year low, says Ernst & Young

US deal flow is likely to remain tempered in 2013 with activity remaining at or near a 10-year low.

Ernst & Young's transaction advisory services says macroeconomic ambiguity combined with a continued corporate focus on lower risk, organic growth opportunities and smaller, strategic deals will define deal-making in 2013.

"In the short-term corporates are hesitant to do deals; nevertheless there is huge pressure for companies to grow in the sluggish economy and M&A opportunity exists for those companies willing to be bold in today's market," says Richard Jeanneret, Americas vice-chair, transaction advisory services for the global Ernst & Young organisation. "Companies continue to focus on optimizing their portfolios for value creation, leaving M&A on the backburner – but those companies who do not begin positioning for growth now may miss the mark in the future."

Fewer US companies report plans to execute an acquisition in the next year as appetite for M&A fell to 23 per cent from 34 per cent six months earlier, according to Ernst & Young's US Capital Confidence Barometer. Of those companies that are planning an acquisition, 81 per cent say they will consider deals worth USD500m or less, suggesting that deals next year will be smaller and focused on filling strategic gaps and extending existing businesses. Private equity (PE) firms have a slightly more positive outlook, citing improving fundraising and confidence in credit availability.

"As corporates continue to be risk averse, PE firms are the ones to watch and are a potential bright spot in 2013 as the down economy provides a good time to invest," adds Jeanneret. "We also see indications that global investors are focused on a flight to safety and are thinking more about the US for capital deployment, as it remains one of the world's strongest economies, even after several years of slow growth."

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