Increased confidence in global market stability is encouraging more companies to think about making acquisitions, a survey from Ernst & Young LLP has found.
Six months ago, one third of Canadian executives surveyed by E&Y planned to pursue an acquisition. In their most recent survey, that has increased to 41 per cent.
"There's also more confidence that the valuation gap between buyers and sellers will contract, which means there's a healthy pipeline of transaction opportunities," said Tony Ianni, transaction advisory services partner at EY, in a statement. The study also found that 66 per cent of Canadian companies have as many as three deals in their pipeline.
A pipeline isn't a guarantee of deals, but so far acquisition values are already up about 20 per cent over last year, according to figures from Thomson Reuters. There were 588 M&A deals in the first quarter of the year worth $35.7-billion.
That strength was in part attributed to an awakening in the energy sector, where there were several large deals worth more than $1-billion to start the year.
Bankers credited commodity prices, an unseasonably cold winter and investor demand with driving the trend in resource deals.
Canadian executives are also among the most optimistic about the world economy, with 79 per cent of the executives polled by EY saying they thought conditions were improving.
A high level of confidence is an important foundation for investment banks, because of how closely deals – both M&A and other financings – are tied to economic growth.
And there are other recent signals of strength. As Streetwise noted last week, there has been a steady increase in institutional interest in bought deals, allowing issuers to increase their offering sizes. Although there's some concern about whether the buoyant conditions can last.