NEW YORK — Pointing to large corporate cash reserves and low interest rates, U.S. business executives are more optimistic about the outlook for mergers and acquisitions (M&A) this year. That’s according to a survey of nearly 1,000 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. KPMG LLP and Knowledge@Wharton surveyed 992 executives at public companies, private companies, PE firms and hedge funds during November 2010.

Two-thirds (66 percent) of the senior executive respondents said they are more optimistic about the deal environment than they were a year ago. When asked to name the top two factors making it easier to complete deals in 2011, more than half (56 percent) of respondents said low interest rates, followed by large cash reserves (47 percent) and motivated sellers (33 percent).

"Companies have shifted their focus from survival to growth, and with low interest rates, large cash stockpiles and stronger stock valuations, many are considering inorganic growth through acquisitions," said Dan Tiemann, KPMG’s Americas leader for Transactions & Restructuring. "Organizations need to act now to take advantage of this period of economic transition."

Saikat Chaudhuri, a Wharton management professor, agreed. "Now, as we are coming out of the crisis, companies don’t want to miss new opportunities. Leaders want to extend their lead," Chaudhuri said.

However, when asked how they think current economic conditions will affect their own M&A plans, only 31 percent of those responding to the KPMG–Wharton survey said that they would increase their number of deals. In fact, slightly more respondents (33 percent) said that they would reduce the number of deals.  They cited unpredictable revenue projections and general negative market conditions, both with 34 percent of respondents, followed closely by availability of debt financing (32 percent), as the biggest challenges to completing deals in 2011. The two leading reasons for respondents’ planned divestitures in 2011 were a change in strategic focus, including product/service/geographic (39 percent), and opportunistic reasons (29 percent).

"As our survey revealed, it’s still a challenging deal environment, which makes conducting meticulous due diligence and a thorough assessment of one’s own company’s strengths and weaknesses even more critical to deal success," noted KPMG’s Tiemann.

Those that do plan to expand this year pointed to general revenue growth (39 percent), expansion of customer base (37 percent), and expansion of geographic reach (36 percent) as the primary reasons driving their own acquisitions this year.

While emerging markets are highly attractive right now, two-thirds (66 percent) of executives said they still see North America as having the most active M&A market in 2011, followed by China (43 percent) and India (31 percent).

For a copy of the report, click here.