Pointing to large corporate cash reserves and low interest rates, US business executives are more optimistic about the mergers and acquisitions (M&A) outlook for this year, according to a survey of almost 1,000 executives conducted by KPMG and Knowledge@Wharton.
Two-thirds (66 per cent) of the senior executive respondents said they are more optimistic about the deal environment than they were a year ago. When asked to name the top two factors making it easier to complete deals in 2011, more than half (56 per cent) of respondents said low interest rates, followed by large cash reserves (47 per cent) and motivated sellers (33 per cent).
"Companies have shifted their focus from survival to growth, and with low interest rates, large cash stockpiles and stronger stock valuations, many are considering inorganic growth through acquisitions," says Dan Tiemann, KPMG’s Americas leader for Transactions & Restructuring. "Organizations need to act now to take advantage of this period of economic transition."
Saikat Chaudhuri, a Wharton management professor, adds: "Now, as we are coming out of the crisis, companies don’t want to miss new opportunities. Leaders want to extend their lead."
Interestingly, when asked how they think current economic conditions will affect their own M&A plans, only 31 per cent of those responding to the KPMG–Wharton survey said that they would increase their number of deals. In fact, slightly more respondents (33 per cent) said that they would reduce the number of deals. They cited unpredictable revenue projections and general negative market conditions, both with 34 per cent of respondents, followed closely by availability of debt financing (32 per cent), as the biggest challenges to completing deals in 2011.
"As our survey revealed, it’s still a challenging deal environment, which makes conducting meticulous due diligence and a thorough assessment of one’s own company’s strengths and weaknesses even more critical to deal success," says KPMG’s Tiemann.
