October 2013 - April 2014
EY Capital Confidence Barometer
Growth mandates — driven by increased confidence and credit availability — will spur M&A activity across mature and emerging markets.
“With companies again allocating more acquisition capital to developed markets, these mature economies are expected to lead the return of global M&A.” ——Pip McCrostie, Global Vice Chair, Transaction Advisory Services
Our latest Capital Confidence Barometer suggests a return of deal activity after a five-year period of falling M&A globally. The fundamentals are in place to foster M&A: confidence in the global economy is at its highest for two years, cash is in abundance, and credit is readily available.
This does not mean we will see a return to boom-time deal-making. That was unsustainable, but so is the scarcity of deals we have been experiencing since 2009. Strategies to improve operational efficiencies have been largely implemented — organic measures alone may no longer meet growth mandates.
Many may now consider inorganic options in order to grow. Sectors such as telecommunications, life sciences, automotive, oil and gas, technology and consumer products are likely to be at the forefront of deal activity.
Confidence in closing deals has significantly increased, as have the number and quality of M&A opportunities — this is strengthening buying intentions. An overwhelming majority — 69% of executives expect an increase in deal activity in the market. Critically, more than a third plan to act themselves and the acquisitions they are considering are of a size to create real momentum in the global M&A market.
The culture of M&A caution has been understandable given the unprecedented economic turmoil we have experienced. The market is also very sensitive to geopolitical issues — continued volatility could subdue deal flow. However, with organic growth measures providing finite returns, M&A could once again be a preferred route to meaningful growth.
Barring further major shocks, M&A and investing will return to prominence on the capital agenda. With companies again allocating more acquisition capital to developed markets such as the UK, US, Japan and Germany — as well as China — these economies are expected to lead the return of M&A.
Simultaneously, companies will continue to pursue emerging markets (such as India and Brazil) and frontier markets (such as Vietnam and Indonesia) as growth mandates take hold.
—Pip McCrostie, Global Vice Chair, Transaction Advisory Services