Executives remain bullish about dealmaking, signaling an uptick in 2017.
More than half of executives surveyed plan to make acquisitions in the next 12 months. This is a clear signal of their determination to counter the low-growth, disruptive environment. Despite economic uncertainty, the appetite for dealmaking remains wellabove the Barometer’s long-term average. This points to an upturn in M&A in the first half of 2017.
Executives are also aware of the need to support valuations higher than the long-term average should the equity markets falter, as they did at the start of 2016.
Q: Do you expect your company to actively pursue mergers and acquisitions in the next 12 months?
Increasing confidence in stability of global M&A likely to drive dealmaking
Executives’ positive dealmaking sentiment is further reflected in their continued expectation of stability or growth in overall M&A. Our survey finds 91% of respondents expect the deal markets to grow or hold steady over the next 12 months. While marketanalysts do not expect a return to the record-high total deal values of 2015, executives appear confident that a sustainable M&A market will persist.
Larger deal pipelines support forecast for higher activity in 2017 with a focus on startups
Larger deal pipelines support a forecast of an uptick in M&A activity. Executives report a big increase in the number of potential targets they are reviewing. Nearly half of respondents say they have five or more deals in their acquisition pipelines,continuing a strong upward trend over the past three Barometers. The desire to buy innovation, especially startups, which may be in different industries or geographies, is necessitating larger pipelines as companies screen more targets. Executivesare looking for acquisitions that both augment their current strategy and offer the potential to supercharge future growth.
Q: How many deals do you currently have in your pipeline, regardless of deal size?
Companies have more deals in the pipeline but mainly of smaller size with smarter execution increasing completions
The need to acquire smaller, more innovative assets is reflected in executives’ planned deal sizes over the next 12 months. So far 2016 has brought a dropoff in megadeals, largely due to concerns over regulatory oversight, a trend that appears likelyto continue. Accordingly, our survey reflects an increase in planned deals in the US$250m to US$1b range.
Executives have become more comfortable with transacting in the past three years as more companies have returned to dealmaking. They know what will work and what will not, increasing the likelihood that deals complete. They are more prepared to take risksand sometimes to fail.
The need to respond to challenges while navigating a complex and fast-changing environment makes dealmaking an imperative, not just for growth but also for survival.
Q: Considering the next 12 months, what is your expectation of deal completions compared with the past 12 months?
Executives are signaling a strong intention to continue cross-border M&A, even as political headwinds make this a more uncertain investment climate
Cross-border dealmaking is still attractive, despite the rise in economic nationalism, protectionist measures and a slowdown in global trade.
Our survey shows companies planning to look all across the map for their preferred investments. Companies are expanding geographic reach at an even faster pace in order to follow their customers, exploit strengths across high-growth markets and acquiretalent and intellectual property.
While geopolitical and regulatory landscapes are more complex, management teams have the experience, data and planning models to mitigate risk and complete cross-border M&A. These deals for geographic expansion are a strategic necessity. Geopoliticalrisk is an impediment to achieving strategic objectives, not a barrier.