Executives warm only slowly to spending more cash on M&A


By Sabine Vollmer

Despite some favourable conditions for an uptick in merger and acquisition activity, surveys indicate that executives are only gradually shedding the reluctance to spend cash they harboured going into 2013.

A recent Deloitte webcast survey of more than 1,200 M&A professionals found that 40% expected M&A activity to pick up in the second half of the year, but only 22% said they plan to deploy cash at a faster rate. About one-third each was either unsure about their company’s cash deployment plans or said no changes were planned over the next six months.

Deploying capital, whether for a transaction or cash-flow planning, is an organisational challenge and can cause indecisiveness, Charles Alsdorf, a director in business valuation for Deloitte Financial Advisory Services, said.

“To avoid ‘analysis paralysis,’ ” Alsdorf said in a statement, “we recommend that our clients start cash deployment planning by first brainstorming possible risks involved and using that information to frame their decisions.”

Global markets shed some of their uncertainties following a tumultuous 2012 – a year in which US deal value decreased about 4% from 2011, according to KPMG. But plenty of uncertainty and risk remain.

The European debt crisis is contained, though not resolved, as record unemployment in Spain and Greece and low consumer demand EU-wide show. The US economy did not fall off the fiscal cliff, but the economic recovery remains slow. And emerging markets such as India, China and Brazil are trying to boost growth in their economies, but growth expectations are below previous levels.

The responses of more than 300 M&A professionals at US companies, who were polled by KPMG at the end of 2012, reflected these uncertainties. Despite low US interest rates, record levels of corporate cash on hand, opportunities in emerging markets and credit that was available on favourable terms, 44% of the respondents said they felt about the same about the deal environment as at the end of 2011.

About one-third said they were more optimistic about the deal environment than the year before.

Deals that respondents deemed most likely to happen in 2013 were small, according to KPMG’s M&A outlook survey. Seventy-nine per cent expected their companies to be involved in deals valued at less than $250 million, up from 68% in 2011.

The most M&A activity was expected in the software/telecommunications/technology sector, and North America was expected to be the most active region.

Related CGMA Magazine content:

M&A in Your Future? Plan for Accounting Integration”: European finance executives who have taken part in recent mergers and acquisitions stress that planning is critical for the integration of accounting functions – before the deal is complete. But a survey by Ernst & Young showed that 39% of respondents said their companies began planning for the accounting integration after completing the deal.

Tech CFOs Expect Cloud Deals to Boost M&A in 2013”: Tech CFOs expect M&A activity to pick up this year, fuelled by deals in the cloud-computing sector, a BDO survey says. Deals are expected to be driven in large part by access to technology assets and intellectual property.

Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.

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