Rebound in business confidence could prompt acquisitions: Ernst & Young

A rebound in business confidence could lead to an increase in acquisitions in the next 12 months, new research suggests.

Ernst and Young’s latest Capital Confidence Barometer, released every six months, is based on a survey of 1,500 executives worldwide, including 146 from Australasia.

According to the survey, 30% of Australian businesses believe the global economy is improving, and 32% of local companies are planning an acquisition in the next 12 months.

However, this is down from 41% in October last year.

“We won’t see a material lift in acquisition intentions until… this expected improvement in the economic outlook actually occurs,” Ernst & Young partner Graeme Browning says.

“What they need is the confidence to do it. That confidence will come from continued economic growth and outlook. Assuming it does, then we will see a spike in activity.”

Encouragingly, more than 80% of Australasian businesses believe the global economy is stable or improving, while almost 90% believe the same of the local economy.

According to Browning, local businesses are less concerned with preserving capital and more interested in optimising, raising and investing.

“On the whole, Australasian companies appear well positioned to pursue growth… Local businesses boast strong balance sheets,” he says.

The research shows the Asia Pacific is the preferred region for investment for both Australasian businesses (89%, up from 70% six months ago) and globally (46%).

According to the research, Australian companies’ top four countries for investment are China, India, Indonesia and Malaysia.

But Browning says most investment by Australasian businesses is still in domestic markets.

“However, in a relative sense, local companies have invested across Asia and will continue to do so… [But] in a relative sense, local companies appear to be lagging their global peers.”

Meanwhile, the latest CommSec State of the States report, produced every three months by chief economist Craig James, shows WA continues to power ahead of the rest of the country.

The report measures the nation’s eight jurisdictions against eight economic indicators including economic growth, retail spending, equipment investment, unemployment and population growth.

The other indicators are construction work, housing finance and dwelling commencements. The April report shows WA topping five of those indicators and ranking strongly for the rest.

“Western Australia is clearly Australia’s best-performing economy,” James says.

“When discussing the Australian economy, it is best to focus on two concepts: total Australia, and Australia excluding Western Australia.”

The ACT and Victoria appear in the next grouping of economies, with both outperforming on housing indicators, while Victoria recorded a solid result on retail spending.

The next group sees Queensland continue to creep up the performance rankings, ranking second on economic growth, while NSW is solid on population growth and housing finance.

South Australia recorded the best result for unemployment, but remains middle ranked on other indicators.

Meanwhile, Tasmania has slipped down the economic performance rankings and now sits alongside the Northern Territory, which is lagging on housing indicators and population growth.