The digital transformation race and rising economic confidence to drive more M&A

London, 30 October 2017

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  • Near-record number of companies (56%) plan to acquire in the next 12 months
  • 51% of executives expecting increased M&A competition see PE as biggest competitive threat
  • Cross-border dealmaking set to rise despite geopolitical and regulatory concerns

Global mergers and acquisitions (M&A) conditions look set to drive dealmaking for the remainder of 2017, buoyed by strengthening economic activity in the eurozone, and growth in China and the United States, according to the EY 17th Global Capital Confidence Barometer (CCB).

With all major engines in the global economy now synchronized in an upward trajectory, a resounding 98% of executive respondents believe global economic growth is stable or improving. Within that economic context, the biannual survey of nearly 3,000 executives across 43 countries finds more than half (56%) of these companies are planning a deal within the next 12 months.

The majority (60%) of executives expect increased competition for assets. Of those, 51% cite private equity as the biggest competitor in the hunt for assets and almost a fifth (19%) of all executives foresee a rise in hostile approaches in the next year. A record high (99%) of global executives believe the M&A market will improve or remain stable in the next year – and just 1% foresee a decline in deals.

Steve Krouskos, EY Global Vice Chair – Transaction Advisory Services, says:

“The resurgence of private equity could be the biggest M&A story over the next 12 months, and see corporates challenged much more aggresively for assets than during the past five years. This rebound of private equity in 2017 is set to take an even bigger role at the deal table.”

Increasing globalization counters nationalistic sentiments

While concerns regarding regulation and market access have increased, almost three-quarters (73%) of companies are looking beyond their countries’ borders for M&A investments.

According to the survey, Europe’s economic revival is creating a powerful draw for inbound investment from across the world. Meanwhile, the UK retains a leading position as an investment destination despite uncertainty over trade agreements relating to Brexit.

Krouskos says: “Recent US and European Union moves to strengthen inbound antitrust and national interest reviews may temper cross-border deal flows, but actions to ensure reciprocity of access should alleviate those concerns. Executives around the world continue to seek foreign investments to meet growth ambitions and we are seeing them actively managing geo-regulatory risks, rather than being managed by them.”

Sectors converge around technology’s center of gravity

Convergence across all industries – and particularly in the technology sector – is highlighted in the survey, with many executives looking at technology investments as the gateway to their digital future. While 38% of companies aim to develop digital capabilities in-house, 30% intend to transform their digital future through acquisitions, joint ventures and alliances.

The top five sectors with the highest acquisition appetite are oil and gas (69% plan to acquire), mining and metals (63%), life sciences (60%), telecommunications (59%) and industrial products (59%).

Corporate venture capital (CVC) investments look set to be a key investment instrument across all industry sectors, with almost two-thirds of companies (63%) currently using or planning CVC to buy future opportunities.

Krouskos says: “Traditionally, technology companies have been at the forefront of CVC investing, but other sectors have now developed CVC expertise, especially life sciences, industrials and consumer products. All companies are now better able to scan their ecosystems for emerging technologies and new start-ups, enabling CVC strategists to quickly identify potential future disruptors for investment.”

The survey finds that the top five investment destinations of choice among executives are the US, China, UK, Germany and Australia.

Shareholder activism still on the rise while inclusive growth demanded

Activist intervention continues its upward trend as investors look for higher returns in better economic times. Companies that are under-scale, cash strapped or struggling in consolidating industries are under more pressure than ever before from shareholder activists. The vast majority (91%) of executives expect the number of companies impacted by shareholder activism to increase or remain at already robust levels.

Almost half (43%) of executives expect North America to see the greatest increase in shareholder activism, while 31% cite Europe and 26% cite Asia-Pacific.

Krouskos says: “Any company with activist shareholders will tell you that managing today’s broad range of stakeholder groups is becoming an increasingly complex demand for the C-suite. Perhaps most interesting is a newly emerging necessity among almost half of executives (45%) to clearly articulate deal rationale to a broader range of stakeholders within the concept of inclusive growth. Cost savings alone may no longer justify the ‘purpose’ of a deal.”

Executives to deal with complexity through M&A

Greater confidence in global economic growth than at any time since the global financial crisis, while positive, is creating powerful new challenges for global businesses, the survey finds. It requires an even keener focus on organic and inorganic growth, as well as cost efficiency to meet rising investor demands in an increasingly complex business environment.

Krouskos says: “M&A may not be making as many headlines of late, but executives clearly plan to make strategic headway through acquisitions. While we have seen few megadeals, due to regulatory and antitrust concerns, buyers are still busy making strategically important investments. With 57% of executives expecting the M&A market to improve over the next 12 months, smaller and smarter deals will also be prominent as companies reshape their portfolios to respond to disruptive forces. This trend, coupled with the race to digital and economic confidence are creating an environment that supports continued, long-lasting strength in the M&A market.”

View the survey online at ey.com/ccb.

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- Ends -

Notes to Editors

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About EY Transaction Advisory Services

How you manage your capital agenda today will define your competitive position tomorrow. We work with clients to create social and economic value by helping them make better, more-informed decisions about strategically managing capital and transactions in fast-changing markets. Whether you're preserving, optimizing, raising or investing capital, EY’s Transaction Advisory Services combine a set of skills, insight and experience to deliver focused advice. We can help you drive competitive advantage and increased returns through improved decisions across all aspects of your capital agenda.

About EY Global Capital Confidence Barometer

EY Global Capital Confidence Barometer is a biannual survey compiled by the Euromoney Institutional Investor Thought Leadership of nearly 3,000 senior executives from large companies around the world and across industry sectors. This is the 17th biannual CCB in the series, which began in November 2009; respondents for the 17th edition were surveyed in September and October 2017. Respondents represented 14 industries, including financial services, consumer products and retail, technology, life sciences, automotive and transportation, oil and gas, power and utilities, mining and metals, diversified industrial products, and construction and real estate. The objective of the Global Capital Confidence Barometer is to gauge corporate confidence in the global and domestic economic outlook, to understand boardroom priorities in the next 12 months and to identify emerging capital practices that will distinguish those companies building competitive advantage as the global economy continues to evolve. ey.com/ccb #EYCCB