By Philip Wen
WHILE the recent volatility in financial markets is unlikely to slow corporate appetite for mergers and acquisitions, the uncertainty over the proposed resource rents tax could pose a greater threat than Europe's debt crisis, according to a transactions expert.
Graeme Browning, Oceania managing partner of transaction advisory services at Ernst & Young, said the volatility in global markets was of short-term concern. He did not expect merger and acquisitions to grind to a halt, as seen during the global financial crisis.
''Banks would have to stop lending again and earnings would have to stop growing. My sense is that both are very unlikely to happen,'' Mr Browning said. Since the global financial crisis, he said, companies had a ''pent-up demand'' for acquisitions having strengthened their balance sheets through retaining profits and raising capital.
With improved earnings and liquidity, companies were now looking to grow.
Treasurer Wayne Swan said yesterday the federal government was continuing with its ''extensive and ongoing consultation'' with the mining industry over the resources tax.
Having talked with eight large resources companies since announcing the tax, the government will convene with another 10 in the coming weeks.
But as talks continue, Mr Browning said the uncertainty of the outcome was making valuing businesses within the resources sector difficult.
''Until there is clarity on just what the super profits tax is going to be, it is going to have an impact on many investment decisions in that sector," he said.
In Ernst & Young's latest capital confidence survey, 45 per cent of Australian companies indicated they were likely to make an acquisition in the next six months, up from 29 per cent in the previous survey.
The survey was conducted in March.
Since then, mounting concern over Europe's mounting debt woes combined with worries over the effects of the proposed resources profits tax has sent markets into a spin.