European M&A confidence at record levels as companies look to return to deal-making
Europe is at the heart of the latest Global Capital Confidence Barometer. European respondents’ sentiment across economic growth, corporate and capital market indicators and deal-making intentions are underpinning the global outlook.
More importantly, European respondents are more confident about conditions in their local market. This, more than anything, is the reason that deal-making intentions are at a record high for European companies. Combined with the greater use of corporate venture capital (CVC) to make investments in new technologies and innovation, European respondents are firmly looking to be proactive in the search for growth.
The outlook that was recorded in April 2017 has been solidified and improved upon. Two thirds now see the local economy improving, up from less than 1 in 10 at this time last year. There has also been a sharp increase in the corporate earnings outlook, up 12 percentage points from April, and the outlook for valuations is very bullish, with half of all respondents expecting local valuations to improve in the next 12 months, up from 30%.
Positive outlook driving deal-making intentions
Six out of 10 European respondents intend to pursue acquisitions in the next year, higher than the global average. This uptick in desire to do deals is primarily driven by a sharp increase in Germany, nearly doubling from 33% to 63%. The desire to grow market share and acquire innovation is also higher than that of global respondents, a clear indication of a more upbeat and outward-looking attitude from European respondents.
Issues do remain, with digital transformation a key concern for Europeans. More cite the impact of digital technology and transformation, and the threat from digitally enabled competition, as prominent issues on the boardroom agenda than their global counterparts.
Slightly fewer than the global average look to be proactive when dealing with the impact of digital transformation and technology on their business models. European companies will need to accelerate their response to digital across sectors and processes.
However, there are signs that this may be happening. European respondents are more regularly reviewing their portfolios; a necessity in identifying and benefiting from emerging threats and opportunities.
They are more likely to use CVC investments to boost access to new technologies and innovation, and to accelerate research and development. European respondents are also planning to allocate more of their investment capital to CVC than their global peers.
Cross-border deal-making and private equity are trending
Two trends that European companies identify for the next 12 months will also help. An expectation of increasing cross-border deal-making will offer more opportunities to invest and divest. Similarly, the return of private equity to the markets will help European companies when divesting assets to release capital for digital and innovative investments.
The outlook for Europe looks bright. An improving economic outlook, a desire to pursue deals and investments to capture future growth and innovation, and a keen eye on identifying new opportunities should translate into increased earnings and even greater firepower.