Technology Capital Confidence Barometer
Sixty-eight percent of technology executives believe the global economy is improving, with another 20% indicating the economy is stable.
This points to the greatest confidence in the global economy in two years, according to our ninth bi-annual Technology Capital confidence barometer, a survey of 1,600 senior executives in 72 countries, including 181 executives from the technology sector. Just six months ago, only a little more than half of respondents believed the economy was improving.
According to the survey, growth is clearly a global imperative for technology companies as 68% of executives say they plan to accelerate growth strategies over the next 12 months.
After several years of uncertainty, the report notes that companies have strengthened their balance sheets and largely optimized their capital structures. Companies are increasingly ready to capitalize on the improving global economy and credit markets to implement their growth agendas.
With core fundamentals in place to support technology M&A, 33% of technology executives surveyed expect to pursue an acquisition, compared with 20% a year ago. This 65% improvement in the number of companies expecting to pursue acquisitions resonates from the notable increase in the last 12 months in an improvement in the number and quality of opportunities and the likelihood that deals will close.
“We are seeing a renewed focus on growth, but with a cautious optimism around M&A that comes, no doubt, after several years of economic uncertainty. Many technology companies have been focused for several years on doing more with less — basically, becoming more streamlined and efficient. Now, with increasing pressure on corporate earnings, they need to grow the top line.”
EY's Global Technology Industry Transaction Advisory Services Leader
The report identifies the following key trends.
- Confidence in global economy is at two-year high. Sixty-eight percent of technology executives believe the global economy is improving compared with 54% six months ago. Executives who see the economy declining fell from 13% in April to 12% in October — the lowest in more than two years.
- Job creation underscores growth. Technology respondents’ commitment to job creation is at the highest level in two years and highlights that companies need to hire as they prepare for the coming wave of growth. At 57%, job creation expectations for technology companies are up from 41% six and 12 months ago.
- Credit is widely available, but cash is on the rise to finance technology deals. The vast majority of technology executives now consider credit availability either stable or improving, as the sentiment on improving credit is almost double what it was 12 months ago. However, the percentage of technology companies planning to use cash to finance deals is increasing compared with 12 months ago, reflecting confidence in overall economic growth.
- Valuation gaps expected to widen. As transaction volumes accelerate, there is a natural divergence between buyers’ and sellers’ expectation on pricing. Recent strong stock market performance has helped increase this gap. Forty-five percent of technology executives expect valuation gaps to widen over the next 12 months versus 18% six months ago, or 2.5 times higher. This widening gap results from buyers and sellers adjusting their expectations at different rates.