Record levels of corporate cash and historically low interest rates may provide the catalysts to fuel a rise in the level of merger and acquisition (M&A) activity this year, according to a survey of 825 executives conducted by KPMG LLP, the audit, tax, and advisory firm, and Knowledge@Wharton, the research and analysis arm of The Wharton School of the University of Pennsylvania.

Executives reported that large corporate cash reserves and commitments (48 percent of respondents) and low interest rates (44 percent) should lead to more M&A activity.

"In the U.S., we'll likely continue to see M&A activity move sideways, but with a slight upward trend," said Dan Tiemann, KPMG's global lead partner for Transaction Services.  "There is a lot of cash on corporate balance sheets sitting here today, and, in the U.S., the debt markets in general are favorable."

Nearly seven of 10 respondents expected their companies to make at least one acquisition in 2012, compared with 57 percent in 2011.  Some 29 percent of executives said the need to expand geographic reach was the primary M&A motivator, while the need for entering new lines of business and expanding their customer bases were the next two most popular rationales, cited by 18 percent and 17 percent of respondents, respectively.

The private equity (PE) sphere also should be active in 2012, also because of cash for investment and the perceived need to expand reach.

"For private equity, we have seen an expansion in geographic reach from many of the PE firm clients," said Marc Moyers, KPMG's national sector leader for private equity.  "Firms are raising funds and opening offices in emerging markets and diversifying their product platforms.  This will give them greater flexibility and opportunity to grow their businesses."

Despite favorable signs, deals are expected to be smaller, with 68 percent of respondents reporting that they expect enterprise values to come in at less than $250 million this year, with 42 percent saying they expected most of the M&A activity to be in financial services, followed by telecommunications and technology, each with 32 percent.  Other industries that are expected to be active are healthcare and pharmaceuticals (26 percent), and energy (22 percent).

Interest in emerging markets notwithstanding, respondents expect most of this year's deals to occur in North America (62 percent), followed by China (36 percent), Western Europe (30 percent), and Brazil (20 percent).  Some observers were concerned about continued economic turmoil in Europe and its effect.

"The crisis in Europe affects the overall outlook and makes companies more cautious," said Bulent Gultekin, a professor of finance at Wharton.

Other survey highlights include:

• Respondents did not expect a quick economic recovery, with two-thirds saying that one would arrive no earlier than the end of 2013.  Only 6 percent expected recovery in the first half of 2012, but 24 percent expect a recover by the end of this year.
• Recessionary fears and a slow growth environment are factors that would inhibit deal activity, according to 53 percent of respondents.  Other inhibiting factors were uncertainty about the U.S. political climate and concerns about the European economic crisis, reported by 28 percent and 25 percent, respectively.