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Macroeconomic
and M&A outlook

Global Capital Confidence Barometer | 18th edition

With all major indicators of the global economy pointing up, executives feel confident about growth and M&A in 2018

The outlook for corporate earnings and credit availability remains strong. These are two key ingredients for a robust M&A market.

Business leaders see little or no downside in their economic outlook. For the first time ever, our survey shows 99% of executives expecting global economic growth to be stable or improving.

Several quarters of synchronized growth globally, along with optimism around the impact of US tax reform, are contributory factors to this positive sentiment.

Q: What is your perspective on the global economic growth?




Strong corporate earnings bolster upbeat assessment of capital market conditions

The outlook for corporate earnings and credit availability remains strong. These are two key ingredients for a robust M&A market. In contrast to many market commentators, executives are looking at their own fundamentals and seeing a brighter outlook for capital markets.

The relatively small decline in these measures sends an important message — the underlining confidence in growth and economic outlook outweighs fears resulting from ongoing public negotiations around trade and geopolitical tensions.

Executives are navigating a wide range of external issues that could hamper growth

From political uncertainty to geopolitical tensions and currency volatility to rising protectionism, executives have a broad array of external threats to navigate. While the impact of increasing tensions on the political stage has unsettled the wider capital markets, any destabilizing effects have yet to be felt in corporate earnings or optimism about the economy.

Rising geopolitical tensions and increasing electoral share for populist parties are a concern for businesses. With policy becoming harder to predict, nearly half of executives see policy uncertainty as a key risk to their business and a similar number cite geopolitical tensions.

The US has been vocal over the past few months about its desire to reimagine the global trade system. If protectionism increases, it could interrupt the efficient flow of goods and services between countries.

Executives are also concerned about disruptive forces, including technology, digital transformation, sector blurring and changing customer behaviors, that could have a more immediate impact on their business. Understanding the broad swath of external risks enables executives to understand the transformations needed within their own ecosystems. This will better enable them to survive and thrive in a fast-changing environment.

Q: What do you believe to be the greatest near-term risk to the growth of your core business?




M&A outlook: after a record first quarter of dealmaking in 2018, executives are signaling a continued desire to transact

But, unlike previous record first quarters in 2000 and 2007, the M&A market is not expected to see a frenzy of buying at inflated multiples or buyers overleveraging to finance deals. Executives are continuing to be more disciplined in their dealmaking, with more than two-thirds (73%) saying they have failed to complete or have walked away from a deal in the past 12 months. And of these, the majority (58%) say it was due to competition from other buyers or disagreement on price/valuation.

So while 2018 looks set to be a healthy year for M&A, it may not see big or controversial deals in the headlines on a regular basis. And as well as valuations, executives are also mindful of the shifting landscape of governmental or regulatory intervention in dealmaking. This is another reason to view the current deal market as robust but not overheated.

Q: What is your expectation for the global M&A market in the next 12 months?




Bigger pipelines, better targeting and continued scrutiny to underpin M&A

The majority of executives plan to increase their pipelines in the next 12 months. Similarly, two-thirds expect to complete more deals in the next 12 months compared to the prior 12 months.

But discipline will be maintained. Companies are increasingly using sophisticated methodologies to source potential targets. They are also using new and evolving due diligence techniques and analytics to assess planned acquisitions. This is especially the case where the target is outside their sector or is being acquired not as a stand-alone revenue-generating asset, but to accelerate growth and performance in existing operations.