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Peruvian deal intentions hit record highs

Global Capital Confidence Barometer | Peru highlights | 17th edition

Even as domestic issues dampen local sentiment, Peruvian deal intentions hit record highs as companies address the impact of digital disruption

For Peruvian executives, persistent global economic optimism and the demands of digital disruption are boosting deal intentions, according to the most recent edition of our Capital Confidence Barometer. At a local level, however, sentiments are more muted, given the current Peruvian political climate.

Compared with our last Barometer six months ago, fewer respondents see the Peruvian economy improving (43% versus 60%). A combination of factors has shaved as much as 1% off Peru’s annual gross domestic product: limits on the government’s ability to move forward with its agenda, the fallout from an infrastructure scandal and billions of dollars from El Niño storm damage.

Although political and economic uncertainty has dampened confidence in the short term,

Peru continues to have one of the fastest-growing economies in the region. Economic activity is expected to pick up steam and GDP growth to get back on track, with a forecasted rate of 3.9% in 2018.

Deal intentions remain bullish

Accordingly, deal intentions by Peruvian companies have hit a record high in this Barometer: 66% of respondents say they will actively pursue deals in the next 12 months, exceeding the global response rate. Additionally, nearly half of Peruvian executives expect increases in both M&A pipelines and deal completions, indicating this M&A trend may persist into the foreseeable future.

A range of rationales is fueling deal intentions — one-quarter of respondents are looking to either move into new geographies or grow market share, and one in five is looking to acquire innovation that can help them future-proof their business at a time of significant technological change.

Indeed, the level of digital disruption Peruvians report experiencing is remarkable: a total of 61% cite the impact of digital technology, and the threat from digitally enabled competitors to their business, as the key disruptive forces affecting their respective sectors.

To address these challenges, 71% say they are taking proactive measures to counter the impact of digital transformation on their business models — including 41% who are supporting their digital strategies by buying, forming alliances or pursuing joint ventures with digital companies.

At the same time, Peruvian companies have taken measures to shore up their operations in-house. This includes increased frequency of portfolio and corporate structure assessment. Nearly half (46%) say they are undertaking a review every six months, and another 45% do so every quarter or more.

Peruvian companies are also investing more heavily in corporate venture capital (CVC) structures to address disruption and innovation, with 62% saying they use CVC to gain access to new capabilities and technologies.

The dealmaking environment for 2018

Looking ahead to 2018, the dealmaking environment for Peruvian companies is likely to heat up, given renewed competition and active sectors. Almost one in three Peruvian executives expect private equity to play a much bigger role in Peru’s M&A landscape over the next 12 months. And at an industry level, technology, consumer products and retail, and mining and metals are high on the list of target sectors.

Perhaps the most interesting twist is that Peruvian executives cite the US as their top destination — a shift from the emphasis on local dealmaking we have seen in the past. This confirms that cross-border dealmaking is likely to become a greater feature of Peruvian M&A, as the country’s business community takes on a more global mindset.

EY - Enrique Oliveros

Enrique Oliveros

Lead Partner

Transactions & Corporate Finance

Ernst & Young
Asesores S. Civil de R.L.

Download Peru highlights (PDF)