28% with revenues of US$5b or greater expect to pursue an acquisition in the next 12 months.
Appetite for M&A declines
Amid uncertainty about the global economic outlook, companies are increasingly wary of acquisitions and their perceived risks. Just 25% of respondents now expect to pursue acquisitions over the next 12 months, down from 31% in April and 41% a year ago. It is not just a lack of confidence in the business environment that is holding companies back — many are also concerned about the gap between their valuation of potential acquisitions and the prices sought by sellers.
For many companies, the intent around M&A has declined. Five years after the financial crisis, many executives are waiting for a sustained recovery before taking action.
Do you expect your company to pursue acquisitions over the next 12 months?
Among those companies that do expect to engage in M&A, deal sizes remain small, reflecting an ongoing aversion to risky, transformational transactions. More than 80% say that they will do deals worth less than US$500m, and 38% say they will do deals under US$50m. This suggests that, where deals are being considered, they will extend existing businesses and fill strategic gaps.
| 28% |  | with revenues of US$5b or greater expect to pursue an acquisition in the next 12 months. |
What is the expected deal size?
| 84% | | expect to do deals of US$500m or less. |
Respondents indicate a significant shift in sentiment on asset prices. Twenty-seven percent of respondents now believe deal prices will decrease, up from 16% a year ago. Significantly more respondents expect M&A asset values to decrease from a year ago, potentially slowing the pace of deals as buyers pause in anticipation of falling asset prices.
| 34% | | in industrial products, 32% of financial services, 28% in oil and gas and 28% in consumer products expect to pursue acquisitions in the next 12 months. |
What do you expect the price/valuation of M&A assets to do over the next 12 months?
Where will the deals be done?
Top investment destinations, according to our respondents span developed and emerging markets, as companies seek to increase their exposure to markets that offer better growth opportunities. There is increasing evidence that developed markets are regaining momentum as top investment destinations.
Four of the top five destinations for companies making investments are unchanged from April, with fifth-place Germany replacing Indonesia. While China remains a top investment destination, completing deals there remains challenging.
| Top investment destinations |
1. China
2. US
3. India
4. Brazil
5. Germany |
|
Inbound investors into top five investment destinations
Fewer divestments expected after period of high activity
There has been a sharp decline in the number of companies planning to make divestments in the next 12 months, from 31% in April to 19% today. Many companies have gone through the process of optimizing their portfolios and offloading those assets that did not fit their overall strategic objectives. This may indicate a shift from a divestment phase to a performance-optimization phase.
Is your company likely to make an asset sale/divestment in the next 12 months?
| Top sectors planning to divest |
1. Fiancial services
2. Industrial products
3. Technology
4. Consumer products
5. Automotive |
|
What are the main drivers of your company’s planned divestment activity? (Select two)
Optimization moves to the forefront
Following an active period of divestment activity over the past 18 months, companies have now shifted their focus to optimizing capital allocation and improving performance.
Viewpoint Boardroom agenda driven by capital optimization
Since the onset of the financial crisis, the content of boardroom discussions has been transformed. Five years ago, topics such as efficiency and cost control — key elements of capital optimization — would rarely have made the boardroom agenda and would have been considered issues for operational management. Today, however, these activities are crucial drivers of value creation, particularly at a time when top-line growth remains elusive in most developed markets. Additionally, more than half of respondents say that optimizing capital allocation has moved up the boardroom agenda, as shareholders demand that boards direct capital toward the most promising investments and maximize returns. |
How do you think the boardroom agenda at your company has changed since the onset of the finanacial crisis.
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