Capital Confidence Barometer, US highlights

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Global Capital Confidence Barometer: US highlights | 14th edition

M&A shows resilience in first half of 2016

First half mid-year release

US executives are reshaping their growth strategies for a world of muted macro growth and powerful competitive disruption. The deal drivers that fueled last year’s record-high US M&A values remain in place heading into the second half of 2016. Where does M&A stand at the mid-point of 2016? With the second half under way, dealmaking activity for the remainder of this year will likely outpace the first half, according to EY’s mid-year release.

Through May 31st, deal values stand at $578.4 billion and US hostile and unsolicited bids are becoming more prevalent. The second half of 2016 will be powered by life sciences and technology deals.

Barometer: US highlights

US executives are transacting at a steady pace, even after a 2015 that saw mergers and acquisitions setting an all-time total-value record. Our 14th Global Capital Confidence Barometer finds US executives not only largely undimmed in their enthusiasm for M&A; they are reshaping their growth strategies for a world of muted macro growth and powerful competitive disruption.

Last October, US deal intentions hit an all-time Barometer high, with nearly three-fourths of executives telling us they were planning deals. That rate, which reflected 2015’s torrid M&A pace, was unlikely to be sustained. Accordingly, this Barometer finds deal intentions down to 57% for our US respondents, which is still the third-highest percentage in our survey’s history. With a few months’ hindsight, it is tempting to call last year the peak of the mid-2010s M&A boom and brace ourselves for a downturn.

Key M&A findings

Deal market driven by strategic imperatives

However, we have reason to believe peak M&A has room to run in 2016, and not only because the first quarter largely maintained the strong transaction pace of the prior year. Companies have accepted the reality of a prolonged low-growth environment — the vast majority of our respondents expect only modest or stable economic growth. Against that backdrop, the current deal markets are driven by a very specific set of strategic imperatives: the ongoing demand for market share to generate return; commodity volatility and a strengthening dollar; a PE-driven wave of divestitures that is multiplying assets for sale; and, most especially, the incessant march of technological progress.

Indeed, companies continue to pursue innovation through acquisition, as customer preferences change and become more sophisticated. Nearly two-thirds of our US respondents say access to new technologies is driving acquisitions across sectors — making one wonder if the very idea of a “tech sector” will one day become antiquated as technology melds into a range of more traditional industries. Acquisition is not companies’ only means to acquire innovation, however. Increasingly, they are pursuing alliances to gain access to the technologies they require. Nearly half of US executives (an even greater proportion than our global respondents) tell us they are entering alliances to accelerate both top- and bottom-line growth.

50% of US executives say acquisitions are top boardroom priority

This supplemental activity does not appear to have reduced the appetite for traditional M&A. Fully half of our US respondents say acquisitions are a top boardroom priority, more than double the rate of their global counterparts. And while shareholder activism has eased as a major boardroom priority, we still see the effect of activists on the agenda, as nearly three-fourths of our US respondents expect hostile bids to become more prominent in the near term. In short, companies have all the incentive they need to pursue strategic M&A.

Several Barometers ago, we noted that the US was “ahead of the curve” when it came to dealmaking. US companies emerged from the post-crisis mindset sooner and began transacting earlier, ushering in this current global wave. In this Barometer, we find US boards and C-suites again playing a clairvoyant role and helping to forge a modern, two-track deal market. They are nimbly responding to the “digital-everything” wave by both forging alliances and making deals. And they are reimagining their Capital Agendas to anticipate a competitive landscape whose rules and norms are still being written.

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