Cautious UK companies turn to deals to drive growth

8 May 2017

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• Over half of UK companies (51%) plan to actively pursue M&A in the next 12 months
• UK rebounds to third most attractive destination for deals globally
• Geopolitical concerns seen as the greatest risk to economic growth for vast majority of respondents

LONDON, 8 May: UK executives are expecting to remain active in the deals market as they prepare their businesses for Brexit, EY’s 16th Global Capital Confidence Barometer (CCB16) showed.

CCB16 found that 51% of UK companies expect to actively pursue mergers & acquisitions (M&A) in the next 12 months – up three percentage points from October 2016, but slightly lagging the 56% global figure.

At the same time, there has been an 11% fall in the number of businesses expecting their growth to come from organic sources since CCB15 in October. Instead, companies are putting greater emphasis on inorganic growth, especially joint ventures (JVs) and alliances, where almost a quarter of respondents (23%) expect growth compared to 13% just six months ago.

The appetite for deals perseveres against a backdrop of geopolitical or emerging policy concerns, which are seen as the greatest risk to economic growth for 70% of UK businesses.

According to CCB16, the UK has maintained its attractiveness for deals with 23% of global companies saying that clarity over the Brexit negotiations timetable, following the triggering of Article 50, has increased their chances of investing in the country. As a result, the UK has reclaimed its place as the third most attractive destination for deals, having fallen out of the top five for the first time in the CCB’s seven-year history last October following the EU referendum. The U.S. (1st), China (2nd), Germany (4th) and Canada (5th) complete the top five.

Steve Ivermee, EY’s Transaction Advisory Services Managing Partner, said: “UK companies are adjusting their strategies to maximise growth opportunities and protect margins amid changing market dynamics at home and abroad.

“Strategic deals that will help businesses access new markets, new geographies and new technologies look likely to remain high on the boardroom list of priorities. However, an increased focus on JVs and alliances suggests that in less certain times some companies are seeking a more conservative, low-risk approach to deal making.

“That the UK remains a top destination for domestic and global companies to do deals, is a measure of its continuing attractiveness. The UK, however, will need to work hard to maintain its position as the Brexit negotiations unfold.”

UK companies expect steady economic growth amid increased risk

According to CCB16, 56% of UK respondents expect the domestic economy to improve over the next 12 months, up from 4% in the last survey. Two-thirds of UK respondents also expect the global economy to improve.

UK companies have a higher level of concern about ‘economic political instability in the EU’ than their global peers. In CCB16, 12% of UK respondents chose this as one of three top risks for the next six to twelve months against 5% globally. But, UK companies are still interpreting Brexit within the broader maelstrom of economic and political change. The biggest economic risks for UK companies in the next six-to-twelve months include currency instability (15%), movement of labour (13%) and trade flows (13%). These fit within their broader concerns over global policy-driven change alongside ‘increasing government intervention’ (14%).

Steve Ivermee, continues: “The UK economy is experiencing relatively steady growth and near-term UK economic forecasts have improved in the last six months. At the same time improvements in the economies of the UK’s primary export markets, especially in Europe and the US, are mirrored in the more positive sentiment of our survey.

“Successful companies will find ways to navigate these challenges. Executives are evaluating M&A across a wide range of geographies to secure market access and grow their customer base.”
View the survey online at ey.com/ccb.
 
ENDS