Deal activity up, to be fuelled by debt

The number of Australian companies planning to use debt to finance mergers and acquisitions has more than doubled in the past 12 months.

The number of Australian companies planning to use debt to finance mergers and acquisitions has more than doubled in the past 12 months, signalling a likely increase in deals over the coming year, according to a new report by Ernst & Young.

The firm’s Capital Confidence Barometer, due to be released today, also shows that confidence in the outlook for corporate earnings has increased and the number of companies confident about the economic outlook has reached a five-year high.

EY Oceania transaction advisory services leader Graeme Browning said the findings showed the ingredients for a lift in M&A activity were present.

“Credit is available, corporate appetite for debt is returning and respondents expect the valuation gap to narrow — we haven’t seen all these ingredients come together in a long time,” he said.

The report is based on a global survey of more than 1600 executives in 54 countries, including 136 in Australia and New Zealand. According to the survey, 32 per cent of local companies are planning an acquisition in the next 12 months, compared with 24 per cent a year ago. Almost 60 per cent of companies said they were confident about the number of acquisition opportunities — nearly double that of 12 months ago.

But while confidence had returned to the market, firms were retaining a focus on efficiency, meaning transactions would be strategic and disciplined.