Results from the Duke University/CFO Magazine Global Business Outlook survey for the third quarter revealed a gloomier view of economic prospects from executives around the world. But the results also indicated that some companies — especially the largest ones represented in the survey — may see opportunities for acquisitions in the downturn. At the same time, executives reported that their companies still are having difficulty in filling key positions.

While confidence in economic growth waned in all regions, it appears to have had little effect on corporate appetites for acquisitions. Approximately 35% of European and Asian respondents said that their companies plan on acquiring part or all of other firms within the next year. Although only a quarter of U.S. respondents said so, this level of interest is in line with historical trends.

The exception is in Latin America (including Mexico), where 82% of respondents said they would not be pursuing acquisitions next year. The uncertainty created by worsening economic conditions in the region may be forcing corporate leaders to act more conservatively as they wait out the storm.

In general, interest in M&A is focused primarily among the very largest companies — again, except for Latin America. In Europe and Asia, the level of interest in M&A jumped to 65% of respondents from companies with revenues of more than $1 billion (billion-plus companies). In the United States, half (51%) of the largest companies were likely to pursue acquisitions in the coming year. In Latin America, however, 73% of even the largest companies will forgo acquisition opportunities, an indication that executives there do not feel that the size of their companies allows them to be any more aggressive in the face of worsening conditions.

In all four regions, improving a company’s industry position was cited among the top reasons for pursuing acquisitions. Beyond that, respondents from Asia appeared to be the most growth oriented. Among the companies in Asia indicating they would be pursuing acquisitions, responses were distributed among rationales that were more closely related to boosting the top line: product synergies, revenue synergies, and geographic diversification.

15Nov_DeepDive_p44In Europe, interest was split more evenly between cost synergies and revenue synergies, while U.S. companies prioritized cost synergies. However, in both regions product diversification also figured prominently as a revenue-generating rationale for acquisitions.

The impact of volatile economic conditions was more evident in Latin America, where industry consolidation trailed only improving industry position as a reason for making an acquisition. Industry consolidation did not break into top-three reasons behind acquisitions in any of the other regions.

In terms of preferred means for pursuing acquisitions, Asian and European companies clearly preferred debt financing (72% and 69%, respectively) over cash (44% and 57%, respectively). In both North America and Latin America, respondents were more willing to apply their cash reserves toward acquisitions, as cash and debt financing received approximately equal numbers of responses. (See Figure 1, above.)

Compensation and Hiring

The poor economic conditions are doing little to allay corporate concerns over the need to balance compensation with critical hiring needs.

More than 60% of respondents from both the United States (61%) and Asia (63%) said that their firms either had recently increased wages and salaries for primary employees, or had plans to do so soon. The percentage of respondents saying so in Europe was slightly lower, 55%. Latin America was the only region in which the number of respondents saying they would raise wages or salaries (48%) fell short of those saying they would not (52%).

Executives anticipating compensation increases were asked about the factors underlying their decisions. Respondents were allowed to select up to three factors, but virtually all respondents picked either one or two.

In line with the dampened economic outlooks for Latin America and Asia, these two regions recorded the fewest companies that attributed wage/salary increases to improved financial performance of their own companies. Improved performance was acknowledged by only 14% of respondents from Asia and 16% from Latin America.

In Europe, on the other hand, nearly a quarter of the respondents (24%) said that they were able to raise wages and salaries due to improved financial performance. This may be additional evidence that European companies continue to grow stronger, however slowly.

15Nov_DeepDive_p45This confidence was more evident among the larger companies in Europe than among the smaller companies. About 65% of the European respondents from companies with more than $500 million in revenues had increased compensation or planned to. Only about half of the companies smaller than this planned to increase compensation.

Regardless of the region in which their companies were located, respondents ranked difficulty in attracting and retaining qualified employees as one of the top reasons for raising wages and salaries. In both Asia and Latin America, respondents expected to reduce the number of full-time employees at their companies. Despite this expectation, in both regions filling hiring needs was the second-most important reason for raising wages and salaries, trailing only labor market pressures in Asia and competitive pressures in Latin America.

In Europe and the United States, where executives anticipated growth in full-time employees over the next year, attracting and retaining qualified employees was the number-one motivation for increased compensation.

Large numbers of respondents from all regions indicated concerns over their companies’ abilities to find the type of employees they sought. A little less than half of all respondents believed their companies would have a difficult time filling key job openings, and less than 10% thought it would be relatively easy to staff up. The concern was highest among executives in Asia, where 62% of the respondents expected to have difficulties in hiring. (See Figure 2, above) Clearly, finance and corporate executives around the world continue to rely on their employees as a foundation for their success.

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