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Companies are on the hunt for larger deals but shareholder activists encourage boards to keep one eye focused on cost reduction.

The UK and Irish results of our 10th Capital Confidence Barometer, which, for the first time includes survey respondents from Ireland, points to economic confidence being more resilient than at any time in recent years. However, companies are increasingly aware of risk, with political instability, unsettled emerging markets and tapering of quantitative easing in the US seen as key economic risks.

The report clearly shows the many complex challenges on today’s boardroom agenda. Irish companies are contending with the interplay of confidence, risk and shareholder action, leading to strategies that seek to balance growth and cost reduction. The pressure for Irish companies to grow remains and lessons learned from the global financial crisis mean that closer scrutiny on cost structures and operational efficiency is now the norm and will not be abandoned despite improved and economic confidence.

Our survey reveals:

Key findings

71% of respondents are confident in the level of corporate earnings

31% are planning to pursue an acquisition in next 12 months

43% expect to use debt to finance acquisitions

31% rank increased global political instability as the highest risk to business

36% state shareholder activism has made cost reduction their top focus

64% believe the local economy is improving

The pressure for UK and Irish companies to grow remains and lessons learned from the global financial crisis mean that closer scrutiny on cost structures and operational efficiency is now the norm and will not be abandoned despite improved economic confidence.

For leading global corporates, striking a balance between risk and reward has rarely been so difficult. Companies are grappling with geopolitical instability, a fragile global economic recovery and seismic shifts in “megatrends” such as structural changes in the workforce and digital transformation — all at a time of unprecedented shareholder activism.

Respondents report that larger transformational deals look set to increase over the next 12 months, as companies place fewer but bigger bets on the table for assets that offer a clear and strategic rationale. What we are seeing now is a level of activity driven by deals that offer a strategic fit to those businesses: quality rather than quantity. Supporting this, executives say the gap is contracting between the price companies are willing to pay for assets and underlying valuations. This will foster an environment in which companies can close larger, strategic deals.

From the businesses we are working with it is clear that they are considering a wide range of deals but are conducting more detailed due diligence to make sure that the deals they are committing to are a strategic fit for the wider business. What we can expect is high value headline-hitting M&A, given the upsurge in the appetite for much larger deals, as executives look to transformational acquisitions to move the growth needle.