Dealmaking, inclusive growth, activism and venture capital models combined with digital at the forefront of boardroom thinking
With a keen eye on the future, executives are looking to take advantage in a fast-changing marketplace.
With the improving outlook for the global economy, it is not surprising that growth, including M&A, is the top boardroom priority. Close behind are digital technology, shareholder activism and portfolio reviews.
The underlying message is that all of these four options are closely connected as executives seek to balance short-term demands with long-term value creation. Both rely on a robust M&A strategy.
Geopolitical and economic issues will also be at the forefront of executives’ thinking over the near term. Policy uncertainty could have a negative effect on investment decisions, but companies are learning to navigate such issues. In particular, they are focusing on the real and rising threat of disruption from ever-changing consumers, technology and sector convergence.
Q: Which of the following will be most prominent on your boardroom thinking during the next six months?
Agility in balancing short-term opportunity and long-term growth at the core of capital strategy
Higher growth is driving earnings expectations and investment in existing operations. This need to balance near-term opportunity with long-term value creation is the most difficult task for the C-suite.
As expected, the uptick in the economy is translating into a larger relative share of near-term earnings to come from existing operations.
But M&A remains a critical component of earnings expectations. Dealmaking, JVs and alliances provide both immediate tailwinds and the tools to achieve long-term strategic targets.
Activism continuing to rise, and now a key issue for Asia and Europe
Executives expect shareholder activist campaigns to increase in the next 12 months, as a low-yield environment compels such investors to look for other avenues to boost returns.
Shareholder activists have long been a feature of corporate life in the United States. However, as the field becomes more crowded at home, established US-based activist investors are looking overseas for opportunities.
Previously, Asia has not been on the radar for shareholder activism. This is partly due to a greater propensity for listed companies to have controlling shareholders, often founders and family interests, or embedded government interests. Nonetheless, activism in Asia is expected to rise, as markets evolve to encourage more mixed ownership models.
In Europe, there is evidence to indicate that activists will follow in their US counterparts’ footsteps and are likely to become more disruptive in the near future.
Q: In the next 12 months, do you expect the number of companies impacted by shareholder activism to:
Laying out a clear and inclusive growth narrative could determine dealmaking success
With the increasing focus on social concerns across many countries, dealmakers are becoming acutely aware of the need to communicate the benefits of deals to a broader set of stakeholders.
This narrative should be centered on a strategy of inclusive growth, where the benefits of value creation are shared more widely in a compelling and effective way. Those that do not create this narrative could face heightened opposition and regulatory and legal challenges.
It is not surprising that a broader narrative will need to consider integration issues as part of the initial deal rationale and as a primary strategic consideration.
Q: In an increasingly complex, globalized M&A environment, which key new factor do executives need to consider when structuring a deal?
Executives look to corporate venture capital models to invest in the future
Companies across all sectors are having to consider multiple futures. Disruption and innovation are accelerating, making it hard to be certain of potential outcomes. Executives are countering this by investing in start-ups, both in their own sector and in others.
Corporate venture capital investments doubled in number and trebled in value between 2012 and 2016. This trend is forecast to continue in 2017.
While technology companies were at the forefront of CVC investing, other sectors have now developed CVC expertise, especially life sciences, industrials and consumer products.
A key consideration for executives is to focus on long-term potential as opposed to short-term financial gains when evaluating these investments.
Q: What percentage of your planned acquisition capital will you target toward CVC-type investments in the next three years?
Executives look to corporate venture capital to future-proof their companies
Technology, innovation and accelerating R&D are the most prominent reasons for companies looking to invest through their corporate venture capital arms. This is allowing companies to invest in a wider range of opportunities. This provides extra optionality, without the need to make more significant acquisitions.
Further, new technology tools are enabling companies to scan their ecosystems for emerging technologies and new start-ups in a manner not available until recently. This enables corporate venture capital strategists to quickly identify the potential enablers of future disruption and growth in near real-time.