A new political dynamic ignites optimism for economic growth and dealmaking among Peruvian executives.
A new, pro-business, pro–foreign investment government has Peruvians feeling positive about their domestic economy, M&A opportunities and growth, according to EY’s 15th Capital Confidence Barometer.
After years of 6% to 7% domestic growth rates, Peruvians had grown accustomed to outperformance, but more recently growth in Peru has slowed in line with the rest of the world. Adjusting their perspective toward this low-growth environment has Peruvians feeling more positive about the domestic economy — this Barometer suggests that executives understand that a low-growth environment is the new normal. At the same time, Peruvians have elected a new government that is much more focused on foreign investment and growing the economy.
As a result, almost half (48%) of Peruvian executives see the state of the local economy as improving, up from 21% six months ago. Domestic market fundamentals support this optimism: since April 2016, positive executive sentiment toward corporate earnings, short-term market stability, credit availability and equity valuations have all roughly doubled. At the global level, executives are slightly less enthusiastic, with most Peruvian respondents perceiving the global economy as stable.
Despite their surge in optimism overall, Peruvians still face challenges relating to their core business and M&A strategies. Executives identify the domestic political environment, high volatility in currencies and commodities, and a slowdown in global trade flows as key risks to their business.
Deal intentions remain relatively high, with nearly half (45%) of Peruvian companies planning deals in the next 12 months, as they look to take advantage of an effervescent deal market. This optimistic rate is down only slightly from a survey high six months ago. Deal fundamentals are equally positive, with companies feeling bullish across the range of indicators, particularly at the local level.
Overall, Peruvians’ perceptions about M&A mirror their feelings toward the global and domestic economies: 70% of Peruvian executives see the global M&A market as stable, and domestically, more than one-third of respondents (35%) expect M&A to improve, up 30 percentage points from a year ago. Accordingly, Peruvians have full pipelines, with an average of four or more deals — and 44% of executives expect this number to increase over the course of the coming year, positioning themselves to take advantage of the active deal market.
In terms of what Peruvians are looking for when acquiring, executives say they are looking outside of their sectors to gain access to new materials or technologies. Within their sectors, one-third are looking at deals that will help them grow market share. At the geographic level, while executives are primarily focused on Peru’s domestic market, they also see China as increasingly attractive; the new Peruvian government has refocused on promoting investment from China, Peru’s main trading partner. This has helped spur an increase in foreign interest from China as well as other countries seeking deals, especially in the wake of the collapse of a handful of Brazilian infrastructure companies.
All of these macro factors are adding to the dynamic nature of Peru’s M&A market. Looking ahead, as changing customer behaviors and expectations, and advances in technology and digitalization continue to disrupt core business in Peru, we expect more Peruvian companies to turn to a mix of buying and partnering to achieve higher returns and take advantage of this fast-changing market landscape.