Capital Confidence Barometer
66% expect to allocate the majority of their acquisition capital to emerging markets
34% are prioritizing cost reduction
59% expect global deal volume to increase
61% see the global economy improving
43% are focused on growth
28% expect to pursue an acquisition
13% see “business as usual,” given shareholder activism
Economic outlook: confidence remains high
Sixty-one percent of technology executives believe the global economy is improving, with another 35% seeing the economy as stable. While confidence in economic improvement has dipped from 68% of executives six months ago, it remains well above the 54% confidence rating of one year ago and the 21% indicator of October 2011.
Meanwhile, confidence has surged in key financial indicators, including corporate earnings, equity valuations/stock market outlook, credit availability and short-term market stability. A full 64% of technology executives report confidence in corporate earnings, up 17 points over the last six months.
The macro trends most affecting technology companies’ business and acquisition behaviors are, first, what is called “the future of work” (including skills gaps and competition for talent) and then digital transformation (driven by today’s mobile, social, cloud and big data megatrends).
Global economic confidence trumps national setbacks
Only 4% of technology executives see the global economy declining, with 61% projecting improvement and 35% expecting stability. These figures show technology executives slightly more confident in the state of the global economy than executives from across all industries, 9% of whom expect a decline.
What is your perspective on the state of the global economy today
Despite geopolitical shocks and slowing growth in emerging economies, global economic confidence remains buoyed by strengthening business fundamentals.
Macro trends converge to shape business and acquisition strategies
The future of work and digital transformation are the two most pressing macro trends shaping technology companies’ business and acquisition strategies for the coming year.
Sixty-two percent of technology executives say their business behaviors reflect issues including skills shortages and competition for talent (commonly called the future of work), while 54% say their acquisition strategies are driven in part by such issues.
Digital transformation is most likely to affect the business behaviors of 51% of technology executives and the acquisition strategy of 49%.
Technology executives feel these influences more strongly than their peers across all industries, given the sector’s fierce competition for scarce engineering and development talent as social, mobile, cloud and big data megatrends drive transformation. Still, for all industries, digital transformation also ranks second (also after future of work issues), shaping business activities for 39% and acquisitions for 41%.
Which of these global trends is most likely to impact your business and acquisition strategy over the next 12 months? Select up to two.
Companies pursue transformative innovation
The profound impact of digital transformation on business behaviors cited above is further underscored by our survey’s finding that 43% of technology companies are focused on transformative innovation, rather than innovating for the sake of efficiency (29%) or replacement (28%).
Validating the disruptive impact of today’s technology trends of mobile, social, cloud and big data, these findings show companies can no longer afford to be complacent with just incremental or marginal improvements to products and services. Their transition to digital is accomplished by a combination of acquisitions, organic funding and partnering, with survey respondents emphasizing organic funding (32%) above the rest.
“Digital transformation has driven technology dealmaking ahead of other sectors. Up next: optimizing investments.”
— Joe Steger, Global Technology Industry, Transaction Advisory Services Leader, at Ernst & Young LLP
Conditions are ripe for ongoing investment, while integrating “done deals”
- 66% expect to allocate the majority of their acquisition capital to emerging markets
- 34% are prioritizing cost reduction
- 59% expect global deal volume to increase
- 61% see the global economy improving
- 43% are focused on growth
- 28% expect to pursue an acquisition
- 13% see “business as usual,” given shareholder activism
Size of planned technology deals seen above global average
The technology sector is among the industries whose deals are most likely to carry price tags of $500 million or more. Technology companies are looking to do larger deals as a way to increase revenue and stock prices in light of lower organic growth.
What percentage of your intended deals will be above US$500m?
Deal opportunities are numerous, but quality is slipping
Fewer technology companies expect to pursue acquisitions, down five points over the last six months, to 28%. Increased valuations evidenced by recent multi-year highs in equity markets may be dampening their interest in M&A.
And, while confidence is high in the number of acquisition opportunities, confidence has dropped in both the quality of acquisition opportunities and likelihood of closing deals. In fact, the technology sector’s perceived likelihood of closing acquisitions (23%) is now below expectations across all industry sectors (32%).
What is your expectation to pursue an acquisition in the next 12 months, and your confidence in the following at the global level?