capital confidence barometrer_spain

8/6/2019 Capital Confidence Barometrer_Spain

1/12

4th Issue

Outlook AprilOctober 2011 Capital CondenceBarometer

Our fourth Capital Condence Barometer reports a surge in

condence in the global economic outlook. Condence in the

global economy has almost doubled in the last six months.

Leading companies are now focusing on growth instead of

defensive measures.Capital market conditions remain strong and condence in many local economies andindustries also remains high. However, more recent external factors such as politicalinstability in the Middle East and rising ination and natural disasters are creating longerterm uncertainty. This is leading to mixed messages for M&A.

In the short term M&A appetite is up, with one third of those surveyed looking for a newacquisition in the next six months. Longer term the appetite for M&A declines albeitfrom a relatively robust level as companies identify organic growth as their No.1 priority.The growing valuation gap between buyers and sellers could also constrain M&A appetite.We should see increased levels of M&A in 2011 but further external shocks may promptboards to rein in acquisition plans.

For the rst time, we compare the views of senior executives in Spain with their peers fromaround the world. In general terms, we can observe:

1 A higher degree of pessimism regarding the duration of the nancial crisis

2 Companies in Spain are more dependent on bank borrowing

3 There is greater reticence towards acquisition growth

4 Boardrooms are more focused on liquidity and improving the competitiveness of theirbusinesses

Our latest ndings again underline one critical point: how companies manage their capitalagenda today will dene their competitive position tomorrow. How they raise, invest,optimize and preserve their capital is vital to their future success. The Barometerclearly shows that many leading companies are in a strong position to determine theirstrategic course, while others are struggling to respond to current market challenges.

Raul Vazquez TAS Leader Spain,Transaction Advisory Services.

About this survey

Ernst & Youngs Capital Confdence

Barometer is a regular survey of senior

executives from large companies aroundthe world conducted by the Economist

Intelligence Unit (EIU).

Our panel, the Ernst & Young 1,000

is comprised of selected Ernst & Youngclients and contacts and regular

EIU contributors.

This snapshot of our ndings gaugescorporate condence in the economic

outlook and identies boardroom trendsand practices in the way companiesmanage their capital agenda.

Prole of respondents

Panel of more than 1,000 executivessurveyed in February and March 2011

Companies from 62 countries

Respondents from over40 industry sectors

559 CEO, CFO and otherC-level respondents

248 companies would qualify forthe Fortune 500 based on revenues

The Capital Agenda1. Preserving capital: reshaping the

operational and capital base

2. Optimizing capital: driving cash and

working capital and managing theportfolio of assets

3. Raising capital: assessing future

capital requirements and assessingfunding sources

4. Investing capital: strengthening

investment appraisal andtransaction execution

Fit for the future?

Survey highlightsOur ndings point to:

Global condence surge the nancial crisis is over, or the end is in sight

Capital market conditions are at a post-crisis high, and leadingcompanies have renanced

Newfound condence is resulting in boards focusing on growth

Short term, M&A activity is set to increase but remains well below pre-crisis levels

The No.1 strategic priority for companies remains organic growth


2/12

2 Capital Condence Barometer Fit for the future?

Global condence is returning. However, any sustained upturn is likely to be determined by external factors: rising ination,continued political instability in the Middle East, austerity and tax regimes and the impact of natural disasters on supply chains

Leading companies have completed renancing, but for those who havent the need is now urgent

The survey shows that boardrooms are cautiously focusing on growth in light of the above factors

There are mixed implications for M&A. At least in the short term, the outlook for M&A activity is getting brighter, and theincreasing number of companies planning to acquire and divest in the next six months should increase deal activity. Targetsare likely to be emerging market companies in the automotive, consumer products, mining and pharmaceutical sectors

Longer term, if the external factors stabilize or diminish, we may see a resurgence in M&A

In the current market the highest priority in the boardroom remains organic growth

Our perspectives

Economic outlook

Boardrooms bullish on recovery.

Condence in the global recovery has surged since October 2010.

Buoyed by high equity values, stabilizing capital markets and low

interest rates, we are now seeing the rst signicant increase

in condence from respondents in 18 months. Almost 60% of

executives now think that the global economy will have recoveredby April 2012. Nearly a fth believe that the nancial crisis is

already over.

For the rst time, we asked, Does yourorganization believe the global nancialcrisis is over? 17% of all respondentssaid Yes.

17%

of companies in Spain believe the nancialcrisis will persist for longer than 12 months.61%

How long does your organization expect the nancialcrisis to persist in the broader economy?

0

20

40

60

80

100

Nov-09 Apr-10 Oct-10 Apr-11

12 months or less More than 1 year

30%

70%

40%

60%

34%

66%

57%

43%

Global

0

20

40

60

80

100



18%

82%

38%

62%

44%

56%

39%

61%

Spain


3/12

3Capital Condence Barometer Fit for the future?

How long does your organization expect the nancialcrisis to persist in your industry?

of companies in Spain expect thecrisis to last more than 12 months intheir industry compared with 22%globally.

48%

Survey respondents are even more positive when viewing

the outlook through an industry lens. At a global level third say

the nancial crisis is over in their sector, and 78% expect

the recovery to be well under way in the next 12 months.

Participants also remain upbeat about their local markets.

Two-thirds (66%) are optimistic about their local economy,up from 64% in October 2010. Levels of condence in Germany

and China remain high.

The survey reveals a surprising decrease in condence in

India and Russia. The UK and Spain show the lowest levels of

condence around the world.

0

20

40

60

80

100


48%

52%

61%

39%

59%

41%

78%

22%


Global

0

20

40

60

80

100


37%

63%

30%

70%

57%

43%

52%

48%

12 months or less More than 1 yearSpain

of Spanish executives interviewedare now more optimistic, comparedto 66% at global level.40%


4/12


Capital market conditions continue to strengthen.

Almost 60% of companies say capital market conditions are

continuing to improve. Thirty-eight percent say access to

funding for capital projects is not a problem. And balance sheet

leverage remains low: only 13% of companies in the survey have

a debt-to-capital ratio above 50%; the majority are below 25%.

With banks re-establishing their capital positions and interest

rates low, nancing for deals is increasingly available.

The preferred sources for funding over the next six months

remain cash and bank loans.

What will be your main source of deal nancing in thenext 612 months?

Capital markets

0%

20%

30%

10%

40%

60%

50%

70%


57%54%

59% 59%

80%

90%

Cash

Global

0%

20%

30%

10%

40%

60%

50%

70%


36%

21%

36% 36%

80%

Bank loansGlobal

0%

20%

30%

10%

40%

60%

50%

70%


45%

89%

57%

45%

80%

90%

Cash

Spain

0%

20%

30%

10%

40%

60%

50%

70%


64%

15%

43%

48%

80%

Bank loansSpain


5/12

5

The pressure to renance is over forleading companies.

Over the past six months, the percentage of companies that

have renanced has signicantly increased. Eighty percent of

the businesses surveyed say they have completed renancing,

compared with 52% in October 2010. But for those that need

to renance, the speed with which they need funds is increasing

rapidly. Nearly two-thirds need to renance within

six months, a three-fold increase since October 2010.

The results point to the availability of nancing as a polarizing

factor among boardrooms dividing the corporate landscape

into those who are thriving and well-placed to grow organically

or through M&A and those who are struggling and lack the

capital to compete.

20%

49%

14%

17%

0% 30%20%10% 50%40%

We have no needto refinance

In need ofrefinancing

We completed asignificant debtrefinancing lessthan 1 year ago

We completed asignificant debt

refinancing1 or 2 years ago

Global

Which of the following most accurately describesyour companys debt/renancing situation?

all businesses in the survey havenow completed or have no needto renance.80%

16%

48%

16%

19%

0% 30%20%10% 50%40%

We have no needto refinance

In need ofrefinancing

We completed asignificant debtrefinancing lessthan 1 year ago

We completed asignificant debt

refinancing1 or 2 years ago

Spain

Capital Condence Barometer Fit for the future?


6/12


Mergers and acquisitions outlook

Mixed messages for M&A.

The surge in global condence is encouraging businesses

to focus on growth rather than defensive measures.

In the short term, appetite for acquisitions is increasing, but

overall, companies are focused on organic growth. This caution

is driven by three dominant external factors that have arisen

in the past six months: political instability in the Middle East;

natural disasters and their impact on supply chains; and tax

and inationary concerns.

Worldwide a third of companies are likely to acquire in the next

six months. Since October there has been an uptick (from 28%

to 33%) in the percentage of companies likely to acquire in the

next six months reecting newfound condence in economic

recovery.

Longer term, nearly half of all companies expect to be

acquisitive. The proportion likely to acquire in the next one

to two years continues to decline. However, if the external

factors diminish, we could see this gure increase.

of Spanish companiessurveyed are likely to acquirein the next six months.35%

Globally speaking, acquisitive

sectors in the next six months

include power and utilities, oil and

gas, and pharmaceuticals.

How likely are you to execute acquisitions in thefollowing periods?

0%

20%

30%

10%

40%

60%

50%

70%


27%27%

11%

43%

25%

35%

24%

59%

56%

67%

23%

0-6 months 6-12 months 1-2 years

11%

Spain

0%

20%

30%

10%

40%

60%

50%

70%


24%

33%

41%

47%

28% 33%

38%

41%

54%57%

67%

44%


Global


7/12


Divestment activity is also expected to rise in the short term.

A fth are likely to dispose of assets. Mirroring the acquisition

trend, the percentage likely to divest over the

next one to two years falls.

Barriers to M&A are increasing.

The No.1 deal breaker now relates to the valuation gap between

buyer and seller expectations, which leapt by nearly a third

(from 38% to 50%). In October 2010, the biggest obstacle

to completing an M&A transaction was stakeholder caution:

more than half of companies (52%) cited it as a problem.

Stakeholder caution is still a serious obstacle, but it has

eased a little (down to 46%).

Management challenges, meanwhile, have grown in

signicance. Concerns over the uncertainty or complexity

of valuations are signicant and growing (from 41% to 49%).

Management is additionally demanding a stronger business

case before supporting a transaction: the percentage of

companies saying that business case thresholds or hurdle

rates are blocking deals increased by a third (from 30% to 39%).

Emerging markets continue to drive growth.

Enthusiasm for globalization and emerging market investment

remains strong as companies look for ways of fueling growth.

The percentage of companies saying they are considering

an emerging market acquisition within six months is 50%

higher than it was in November 2009 and continues to rise.

By contrast, interest in developed market transactions is low

and falling (to 18% from 21% this time last year).

of respondents in Spain arelikely to make divestmentswithin six months.20%

How likely are you to execute divestments in thefollowing time periods?

0%

20%

30%

10%

40%

60%

50%

70%


17%

21%

18%

38%

16% 18%

20%

19%

27%

21%

40%

42%


Global

0%

20%

30%

10%

40%

60%

50%

70%


10%

11%

27%25%

20%

23%

41%

35%

13%


Spain


8/12


Which statement most accurately describes your

organizations focus over the next six months?

Sectors most likely to acquire in the emergingmarkets are automotive, consumer products,mining and pharmaceuticals.

The most popular structure for an emerging market transaction

is a joint venture/alliance (29%). This is not surprising given

the signicant risks associated with an emerging market

investment, not least in the areas of business culture and

growing domestic protectionism. Moreover, many organizations

will be experiencing these risks for the rst time.

For most the No.1 priority remainsorganic growth.

Continuing the trend we saw in October, almost half

of all companies are focused on organic growth, representing a

100% increase from 18 months ago. By contrast, only a third of

companies say they are focused on M&A activity,

a small increase on October 2010 but still a fth fewer than

12 months ago.

0%

20%

30%

10%

40%

50%


25%

38%

46%

49%

Focused on organic growth

Global

0%

20%

30%

10%

40%

50%


18%

38%35%

42%

Spain

Likelihood of undertaking emerging and developed marketacquisitions in the next six months.

0%

20%

30%

10%

40%


15%

21%

27%

20%18%

32%31%

21%

Emerging markets Developed markets

Global

0%

20%

30%

10%

40%


18%

27%

15%

13%

23%25%

8%

Emerging markets Developed markets

Spain


9/12


Short term xes remain important, but the focusnow is on building sustainable improvements.

In the aftermath of the nancial crisis, leading companies

took immediate protective steps to preserve cash and reduce

costs. Companies are now focusing on improving long term

business performance.

In October 2010, two-thirds of companies were focusing their

efforts on cutting costs and improving cash ow. While these

remain key priority areas, the percentage of companies planning

to give increased focus to them over the next 12 months is

falling.

In Spain, cash ow and liquidity issues continue to be the

primary focus for companies (74%) closely followed by cost

reduction and operational efciencies (68%).

Companies are now moving on to the tougher challenge

of building sustainable improvements into their business

operations. Areas where they plan to invest greater effort

include customer segmentation, performance management

of subsidiaries and optimizing capital structures. There is also

increased effort on acquisition integration and tax efciency

which doubled (from 6% to 14% and 5% to 10% respectively).

The two-speed boardroom.

The business outlook is improving for companies that have

completed renancing and started the work of optimizing their

operations. But for those left behind, the opportunity to catch

up could be disappearing fast. This polarization is clear.

While the majority of companies have renanced their balance

sheets and set a strategic course, 1 in 10 remain focused simply

on survival. Such companies will increasingly nd themselves

with their options diminished. For some, their business model

has been permanently impaired.

Top 5 areas of focus for businesses over the next 12 months.

April 2011 October 2010

Customer segmentationand profitability

Cash flow/liquidity

Operationalefficiencies/

cost reduction

Performance monitoringof subsidiary businesses

Capital structure

57%

51%

38%

32%

27%

67%

58%

32%

24%

22%

Global

April 2011 October 2010

Customer segmentationand profitability

Cash flow/liquidity

Operationalefficiencies/

cost reduction

Performance monitoringof subsidiary businesses

Capital structure

74%

68%

39%

29%

23%

83%

74%

22%

30%

4%

Spain


10/12


A strong Capital Agenda needs to be at the heart of all strategic

boardroom and management decisions. The ndings of our

Capital Confdence Barometer provide useful insights into

the ways companies are raising, investing, optimizing and

preserving capital.

Using the Capital Agenda will help companies considertheir issues and challenges, and more importantly,understand their options to make more informedstrategic capital decisions.

Understanding your Capital Agenda

Stress and distress e.g., liquidity issuesand turnaround plans

Customer and supplier analysis

Preserving tax assets andminimizing costs

Refinancing or restructuring debt,

equity and other obligationsDealing with stakeholder

relationships and pressure

Dispute resolution

Optimizing asset portfolio

Delivery of synergies andeffective integration

Improving working capitaland releasing cash

Optimizing capital structureOptimizing tax and

corporate structure

Fundraising (equity and debt)IPO readiness, rights issues,

PE, private placement and

capital markets

Optimizing funding structuresAsset divestment

Infrastructure projects

Cost-and tax-efficientstructures

Acquisitions and alliances

Planning and structuring transactions to optimize

stakeholder returnFocused due diligence to mitigate

risk and drive value

Asset valuations

Cost-and tax-efficient structures

Preserv

ing Optimiz

ing

Inves

ting Raisin

g

The CapitalAgenda


11/12


Survey demographics

What is your current debt-to-capital ratio?What is your position in the organization?

75100%

5074.9%

2549.9%

Less than 25% 58%

29%

8%

5%

0 605040302010

What are your companys annual global revenues in US$? In which industry is your company? (Number of companies)

US$5b or more

US$1b4.9b

US$500999.9m

Less thanUS$499.9m

25%

24%

28%

23%

0 605040302010

Oil and gas

Technology

Power andutilities

Automotive

Professionalservices

Life Sciences

Consumerproducts

Manufacturing

Banking/Financial

services

Information

technologyMining and

metals

Chemicals

0 175150125100755025

160

128

100

78

74

72

69

66

60

55

18

17

C-level

SVP

Head of businessunit/department

Manager or other

0 605040302010

50%

30%

18%

2%


12/12

Ernst & Young

Assurance | Tax | Transactions | Advisory

2011 EYGM Limited.

All Rights Reserved.EYG no. DE0232

This publication contains information in summary form

and is therefore intended for general guidance only. It is

not intended to be a substitute for detailed research or the

exercise of professional judgment. Neither EYGM Limited nor

any other member of the global Ernst & Young organization

can accept any responsibility for loss occasioned to any

person acting or refraining from action as a result of any

material in this publication. On any specific matter,

reference should be made to the appropriate advisor.

www.ey.com

About Ernst & Young

Ernst & Young is a global leader in

assurance, tax, transaction and advisory

services. Worldwide, our 141,000 people

are united by our shared values and an

unwavering commitment to quality.We make a difference by helping our

people, our clients and our wider

communities achieve their potential.

Ernst & Young refers to the global

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Ernst & Young Global Limited, each

of which is a separate legal entity.

Ernst & Young Global Limited, a UK

company limited by guarantee, does

not provide services to clients. For more

information about our organization,

please visit www.ey.com.

About Ernst & Youngs Transaction

Advisory Services

How organizations manage their capital

agenda today will define their competitive

position tomorrow. We work with our

clients to help them make better and

more informed decisions about how

they strategically manage capital and

transactions in a changing world. Whether

youre preserving, optimizing, raising

or investing capital, Ernst & Youngs

Transaction Advisory Services bring

together a unique combination of skills,

insight and experience to deliver tailored

advice attuned to your needs helping you

drive competitive advantage and increased

shareholder returns through improved

decision making across all aspects of your

capital agenda.

If you would like to discuss your companys Capital Agenda, please

contact your usual Ernst & Young advisor, or any of the contacts

listed below.

Contacts

Name Telephone number Email

Transaction Advisory Services

Raul Vazquez

Transaction Advisory Services

Leader

+34 915 727 772 [email protected]

Transaction Support

Mar Ares +34 915 727 296 [email protected]

Pedro Rodriguez +34 915 727 469 [email protected]

John Bristol +34 915 727 283 [email protected]

Eva Maria Abans +34 933 663 805 [email protected]

Restructuring Services

Remigio Barroso +34 915 727 226 [email protected]

Mergers & Acquisitions

Victor Duran +34 915 727 690 [email protected]

Valuation & Business Modelling

Javier Sanchez +34 915 727 476 [email protected]

Acknowledgements

Our special thanks go to the Ernst & Young 1,000* for their contribution to this survey.

* The Ernst & Young 1,000 comprises an EIU panel of senior executives and selectedErnst & Young clients and contacts who participate in the Capital Condence Barometeron a biannual basis. The surveys are conducted on an independent basis by the EIU.

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