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Macroeconomic
and M&A outlook

Global Capital Confidence Barometer | 17th edition

Acceleration in developed markets underpins buoyant economic outlook

With the Eurozone gaining momentum, conditions look set to drive corporate investment. The stronger than expected turnaround in economic activity in the Eurozone has boosted executives’ expectations for global economic growth. With China and the US remaining positive, all the major engines of growth in the global economy are now synchronized in an upward trajectory for the first time since the end of the global financial crisis.

Other indicators, such as Purchasing Managers indices, are also supportive of a sustained period of stronger economic growth.

With interest rates still low, and policy makers showing caution around benchmark rate increases, conditions look set to enter a period where stronger growth and low cost of capital coexist. This should embolden the C-suite in making investments in existing operations and acquisitions.

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

What is your perspective on the global economic growth?

Greater confidence in the global economy is boosting executives’ outlook for corporate earnings and equity valuations.

This sentiment, alongside greater confidence around credit access and market stability, are net positives for investing and dealmaking intentions. With benign volatility measures, such as the Chicago Board Options Exchange Volatility Index (Cbeo VIX), executives are not anticipating any sudden deterioration in capital market conditions.

The biggest risks to growth could be policy missteps, such as central banks raising rates too quickly or removing too much liquidity from global financial markets.

M&A outlook: Fastest route to growth still includes dealmaking

Ironically, some expect an improved economic outlook to stall dealmaking. They believe organic growth will be sufficient. The failure of this thinking is that the uptick in growth is relatively modest and will not provide the tailwinds to meet shareholder demands.

Executives are also balancing the need to capture current opportunities for growth with the need to future-proof their business. Executives are looking to take advantage of emerging trends and changes to their industry to boost long-term value. The fastest route to this journey includes a well-positioned M&A strategy.

Q: Do you expect your company to actively pursue M&A in the next 12 months?

Do you expect your company to actively pursue M&A in the next 12 months?

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

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

A healthy economic outlook and the need to redefine portfolios will underpin deal making in the near term

Supportive market factors, including low interest rates, surplus cash reserves, a full deal pipeline and record PE dry powder, are likely to propel M&A during the coming months. The return of European companies to the M&A market, both on the buy and sell side, has propelled dealmaking in 2017. Continued, expected acceleration of the Eurozone economy will support this. The increasing frequency of portfolio and strategic reviews will also boost the number of assets coming to market.

The increasing frequency of portfolio and strategic reviews will also boost the number of assets coming to market.

While megadeals may be less prominent due to regulatory and antitrust concerns, deals in the US$1b–US$10b range will underpin global deal values. Smaller, strategic deals will also be prominent, as companies reshape their portfolios to respond to disruptive forces.

Strong pipelines, along with discipline, underpin more completions in a robust M&A market

Both pipelines and expected completions are supportive of a continuation of the current deal cycle. Executives are looking to keep pipelines steady or increase the number of assets under consideration. They are looking to do the same with deal completions.

The increase in expected completions over the next year reiterates an emerging trend, backed by academic and analyst research, that companies are getting better at targeting assets and conducting preliminary diligence prior to making a bid. The importance placed on considering integration as a strategic imperative is also focusing executives’ minds on what deals are likely to be successfully completed.

Q: How do you expect your pipeline to change?

How do you expect your pipeline to change?

Positive economic conditions driving consolidation, but innovative assets in demand

Combinations drive short-term gains, but acquiring innovation is critical for long-term success. While market conditions are making consolidation within many sectors attractive, executives are looking to acquire innovation and move into new geographies to realize future growth potential.

Q: What are the main strategic drivers for pursuing acquisitions?

What are the main strategic drivers for pursuing acquisitions?

With global economic growth accelerating, trade flows will become more fluid

Despite the shifting political landscape and lingering uncertainty, Europe’s economic revival clearly creates a powerful draw for inbound M&A from across the world.

Recent announcements by the US and EU to strengthen inbound antitrust and national interest reviews may temper cross border deal flows, but actions to ensure reciprocity of access could reduce tensions. However, the imperative to globalize operations overrides recent nationalist tendencies. Business leaders seem set to seize the opportunity to become a leading voice in championing globalization.

Top 10 investment destinations

Top 10 investment destinations