Executives expect M&A activity to increase, according to Why Capital Matters, a study by accountancy firm Ernst & Young.

Executives expect M&A activity to increase, according to Why Capital Matters, a study by accountancy firm Ernst & Young.

The study of 500 senior executives around the world found that a third of respondents (33 per cent) say that they are likely or highly likely to acquire other companies in the next twelve months, while 25 per cent expect to do so in the next six months.

Jon Hughes, UK & Ireland managing partner of Ernst & Young’s transaction advisory services group, says: ‘In the coming months, there is likely to be an increase in M&A activity as companies dispose non-core, underperforming or distressed assets. Those in a position to buy will have the opportunity to capture market share and grow revenues in ways that were impossible two years ago.’

The research highlights the importance of moving swiftly. Almost half of respondents (45 per cent) anticipate an increase in distressed assets coming to market, but only 36 per cent say that they are ready to act quickly should an opportunity present itself.

Hughes says: ‘The winners will avoid the temptation of inertia and have the confidence to use their capital at a time when rapid decision-making could make the crucial difference between success and failure.’

Although there is hope of greater deal flow, finance remains scarce. Over half (53 per cent) of respondents think that financing conditions will not return to mid-2007 levels for at least another three years, while 19 per cent believe it may be five years or more before a return to this level.

‘Capital is no longer cheap nor is it readily available. The tough new realities will force some executives to seriously consider a strategic review,’ adds Hughes.

In addition to the lack of finance, 70 per cent of respondents expect the recession to persist for more than a year; of those, 40 per cent believe it will continue for more than two years.