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M&A intentions remain at near-record levels

Global Capital Confidence Barometer | Real Estate, Hospitality & Construction | 17th edition

RHC execs confident about the global landscape

In this edition of the Capital Confidence Barometer, we find that real estate, hospitality and construction (RHC) executives feel increasingly confident about the global economic landscape, with 75% of RHC respondents indicating that they see global economic growth improving, up from 65% six months ago. And while their optimism about their own sector may be slightly more subdued — 66% say RHC sector growth is improving — an overwhelming 93% perceive RHC growth to be either improving or stable.

This, combined with sound confidence across a swath of capital market indicators, means good news for dealmaking. Intentions remain at near-record levels and well above the long-term average, with 49% of RHC executives expecting to actively pursue M&A in the next 12 months.

A healthy economic outlook and supportive market factors, including low interest rates and a strong deal pipeline, have RHC companies feeling bullish about dealmaking over the medium term, with half expecting the global M&A market to improve and slightly more (52%) anticipating the same for the RHC M&A market in the coming year.

RHC companies feel the pressure of disruption from all sides

The No. 1 reason RHC executives cite for pursuing acquisitions is to grow market share, although acquiring innovation, such as new technology, new production capabilities or innovative start-ups, is a strong secondary driver. This comes as no surprise, as current RHC companies are experiencing disruptive pressures from all sides.

For example, digital technology is enabling customers to change their behaviors. In addition, digital is transforming business models, and it poses fundamental threats to their business from digitally enabled competitors and start-ups.

In response, executives are taking action against disruptive forces. For instance, 70% of RHC executives say they are taking proactive measures to blunt the impact of digital technology to their business models, while 59% favor a proactive stance when it comes to dealing with changing customer behaviors.

RHC companies are also looking at a range of talent strategies, from developing digital capabilities in-house (43%), to hiring executives with digital expertise from outside the sector (29%), to forming joint ventures with, or acquiring digital companies that can support their digital and corporate strategy (28%).

A look ahead to 2018

As we look to 2018, RHC respondents see the return of private equity as a major M&A player as the key theme. Interestingly, however, only a third of executives expect the competition for assets to increase. Of those, half say that competition will be coming from private equity.

An increase in cross-border dealmaking is also on the horizon, and top RHC investment destinations represent some marquee markets globally. RHC executives rank the US as their No. 1 destination, followed by China, Australia, the UK and Singapore.

EY - A look ahead to 2018

As the months ahead unfold, we expect digital to continue to disrupt the RHC landscape. In response, RHC executives will be pursuing all avenues of growth to remain competitive. With an overwhelmingly positive economic landscape, supported by strong dealmaking fundamentals, we expect M&A activity to remain vigorous well into 2018.

EY - Mark Grinis

Mark Grinis

EY Global Real Estate, Hospitality & Construction (RHC) Leader

+1 212 773 5148