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Sector M&A outlook

Global Capital Confidence Barometer | 15th edition

External influences and future growth potential is driving appetite for dealmaking.

The percentages below reflect those who intend to actively pursue acquisitions in the next 12 months. Read our full sector reports for more insights.

Consumer products and retail

Many large consumer goods companies are being challenged by disruption. Digital technologies from machine-learning artificial intelligence to cloud computing are transforming everything from supply chains to data storage. Additionally, direct-to-consumer brands are challenging traditional retail strategies and the relevance of physical stores.

Many companies are faced with a rising tide of smaller, nimbler, digital-first competitors. Recognizing the need to accelerate innovation, many businesses are building venture capital arms to buy smaller, more agile companies. They are focused on granular consumer segments that offer new, more relevant levels of benefit.

Diversified industrial products

Global industrial activity in the first half of 2016 increased slightly. Growth in the US and Japan has been modest, while the Eurozone shows resilience amid uncertainties. Global trade momentum is expected to continue to trail global GDP growth. However, increased activity from key exporters in Asia may boost future manufacturing results. Executives are recognizing the importance of preserving a long-term competitive edge to increase profitability and retain market share.

Innovative technology is transforming existing product lines and supporting the rollout of new products and services. Many industrial companies are looking to acquire these transformative technologies rather than develop them internally. This growth strategy could spur increased deal activity, especially for targets with highly specialized assets.

Life sciences

Due to rising payer and provider power — and increasing focus on linking drug and device prices to patient outcomes — companies believe they must achieve leading positions in fewer therapeutic areas to compete commercially and reignite growth. These core growth challenges will continue to drive the industry’s M&A and divestiture agenda.

While substantial revenue growth remains elusive for many, life science innovation has never been stronger. With maturity comes challenges: like many pharmas some commercial-stage biotechs are challenged to grow. They risk disruption from smaller biotechs with cutting-edge therapies and technology players that see opportunities in managing the flow of health data. This disruption will create deal activity within the sector and across other industries.

Technology

It appears that neither equity market volatility nor geopolitical uncertainty can halt global tech M&A. Even activist investors’ scrutiny seems no barrier to continued growth — and activists may actually be fueling activity.

Tech companies will continue turning to M&A to accelerate their transformations and to build end-to-end solutions. Non-tech companies will increasingly acquire tech, driving up cross-industry blur — and all will pursue security technologies. M&A continues to be the primary choice to help corporate strategy keep pace with unprecedented disruption from rapidly advancing digital technologies.

Automotive

Digital disruption and the blurring of sector lines have automotive companies planning for multiple possible futures. Until just a few years ago, automakers were at the center of an industry that was concentrated on affiliated functions such as financing, parts supply, logistics and retail dealerships.

Now, the ecosystem has grown to include many new stakeholders: cities, ridesharing operators, government agencies, technology and telecom providers, media and entertainment companies, transit service providers, energy companies and utilities, financiers, entrepreneurs and — most crucially — consumers. M&A plays a critical role as an important, transformative option for expanding on the core products and services of today — and accelerating the emerging businesses of tomorrow.

Oil and gas

Companies are grappling with the financial reality of excess debt and squeezed profits due to lower oil and gas prices, leading to a rapid transformation of the sector. This environment is also providing opportunities for astute investors, including private equity (PE) firms striving to uncover the silver lining of a depressed commodity price environment. Investors waiting to see if the downturn has definitely hit bottom are more likely to start doing deals in early 2017.

External influences are compelling companies to acquire outside their own sector

Sector blurring — companies increasing and deeper incursions into adjacent or unrelated industries — has become a prominent feature of the current M&A market. Executives looking for deals outside of their own industries show their determination to reimagine their market.

Companies’ most cited factor for cross-sector acquisition is, unsurprisingly, reacting to competition, followed by a desire to acquire new products or services. In both cases, these are being driven by new market entrants upsetting the status quo, changing the competitive landscape with new operating models, new ways of creating demand, as well as hybridization of products and services.

Cross-sector deals are also being prompted by the changing expectations of customers and the need to engage more proactively with potential customers, especially via big data and analytics.

Q: What is the main strategic driver for pursuing an acquisition outside your own sector?

What is the main strategic driver for pursuing an acquisition outside your own sector?

Companies acquiring in their own sectors are looking for future growth potential

Of course, companies continue to actively pursue deals in their core sector, with a primary focus on traditional market share growth. They are also looking to acquire new technology and production capabilities to improve efficiency and margins.

Executives also say they are reacting to changing customer behaviors when considering such deals. In an ongoing low-growth environment with margins and profitability challenged, companies are looking to broaden their offerings and become the single vendor of choice, especially in markets where they have a strong position.

Q: What is the main strategic driver for pursuing acquisitions in your current sector?

What is the main strategic driver for pursuing acquisitions in your current sector?