CFOs expect M&A activity to increase
Every six months, we survey senior leaders from companies around the globe for our Capital Confidence Barometer. In September, we surveyed some 1,600 business leaders across 18 industry sectors and 62 countries. This report represents the outlook of the 582 CFOs among that group.
EY Americas Senior Vice Chair — Accounts
Julie Linn Teigland
EY EMEIA Accounts Leader
EY APAC Deputy Area Managing Partner
A note from EY leadership
Welcome to the third edition of the CFO Capital Confidence Barometer. The global data shows a marked improvement in corporate confidence since our last Barometer.
More than three quarters of CFOs (77%) are confident in corporate earnings. The number of CFOs who expect their deal pipeline to increase over the next 12 months has doubled, with the bulk of deals expected to come from the middle market.
The proportion of executives who plan to add jobs has increased by one third. Overall, CFOs’ confidence in their business fundamentals has jumped.
More CFOs also consider the global economy as stable than they did six months ago – increasing from 34% to 46%. However, this is tempered by the fact that fewer CFOs characterize the state of the global economy as improving – down from 57% to 50%.
This seems largely driven by concerns regarding geopolitical instability, which CFOs cited as the greatest economic risk to their businesses. Problems such as the tensions between Russia and the Ukraine, the ongoing conflict in the Middle East and the Ebola crisis weigh on their minds.
Some regions, however, are more optimistic than others. Finance executives in Asia-Pacific have the most bullish outlook, with North America not far behind. However, in Europe, the Middle East, India and Africa, optimism is more tempered, with a greater emphasis on stability than on growth.
In sum, many CFOs remain optimistic about their organizations and their local markets, and as a result M&A activity over the coming year is set to increase. While economic uncertainty has certainly not gone away, our findings seem to suggest that many CFOs have learned to adapt – and are succeeding in spite of it.
A note from Pip McCrostie
Global Vice Chair, Transaction Advisory Services
Our 11th Capital Confidence Barometer predicts healthy growth for M&A globally, which should take the market back to levels last seen before the financial crisis.
Acquisitive appetite has increased and deal fundamentals — credit, cash and prices — are strong, as is confidence in economic stability. The biggest indicator of this positive sentiment is deal pipeline, which has increased by a remarkable 30% since April.
In addition, two-thirds of executives expect M&A pipelines to expand further over the next year — more than double the number expecting expansion six months ago.
As we predicted in our previous Barometer, 2014 has seen a big increase in multibillion-dollar deals. Now, increasing competition at the top end and a renewed focus on growing core businesses will fuel more middle-market deals.
The majority of acquisitive companies are now focusing on M&A to strengthen their core business, with an eye to boosting market share, managing costs and improving margin growth.
Megadeals are set to continue. However, the next chapter of the M&A story should be middle-market deals fueling an M&A rebound globally.