Ernst & Young: Lower Economic Confidence Clouds Deal-making Outlook

By Rob Starr, Content Manager, Big4.com

According to Ernst & Young’s latest Capital Confidence Barometer, based on a survey of more than 1,500 senior executives in 41 countries around the world, seventy-six percent in the US think that the global economy shows no signs of improvement, and the percentage of US companies planning an acquisition in the next 12 months fell to 23% from 34% six months ago.

Despite declining optimism in the global economy, deal fundamentals are still relatively strong. Cash on balance sheets continues to build and access to credit remains stable.  There is approximately $1.3 trillion in cash on US corporate balance sheets ¹. Seventy percent of US respondents believe credit is either stable or improving, although this percentage is down from 80% in April. While credit is broadly available, particularly to large-cap enterprises, US companies cite a modest decline in credit availability with only 28% viewing credit markets as improving compared with 37% in April.

Focus on inorganic growth slows as companies hunker down and prioritize deleveraging and returning cash to stakeholders
Against a backdrop of uncertainty, companies report an increased focus on strengthening balance sheets, reducing costs, improving efficiency and maintaining stability, compared with six months ago. Growth remains the top priority for US companies for the foreseeable future.  However, the focus on inorganic growth has declined as companies are positioning for a slow recovery with low or stagnant growth rates.