EY “Capital Confidence Barometer”

Outlook dims for global economy

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Swiss companies view the development of the global economy with growing concern. Only around one fifth of Swiss managers predict improvement, according to a recent EY study. Over a half-year period, expectations were also lowered regarding growth for the Swiss domestic market. Nonetheless, the majority of Swiss companies expect stable M&A volumes in the coming months. There are also some large-scale deals in the pipeline. New OECD guidelines have already caused 12% of Swiss respondents to refrain from planned acquisitions.

Zurich, 12 May 2016 – Confidence in the global economy is declining, along with the appetite for acquisitions. Major Swiss corporations have also become much more pessimistic than they were half a year ago. Only 19% believe that the global economy will improve. This is a clear decline in comparison with the last survey in the autumn of 2015, when 80% of Swiss companies expected global economic conditions to improve. A similar situation is revealed by the current "Capital Confidence Barometer" from the advisory firm EY: the number of economic optimists has more than halved, from 83% to 37%, within the last six months. The study is based on a survey of 1,700 managers in large companies around the world, including 31 companies in Switzerland.

“Managers have clearly lowered their growth forecasts. However, slow economic growth combined with increasingly disruptive factors can also lead to stronger demand for transactions. In light of the price pressure and rapid pace of change, organic growth is no longer sufficient for many companies. In addition to acquisitions, it is also possible to observe a greater tendency to form alliances and enter into partnerships,” says Ronald Sauser, Head of M&A at EY Switzerland. The reasons for this include savings in integration costs and the greater flexibility of strategic alliances.

Biggest concern: global political instability
Only 13% of Swiss managers believe that the economic situation in the domestic market will improve in the short term. Last October, however, 52% took a positive view. Nevertheless, nearly three out of four respondents (74%) now predict stable growth, with 13% anticipating a deterioration of the domestic economy in the short term. Respondents were also less upbeat about the job market. Only one quarter of Swiss companies (26%) plan to hire additional staff, compared to one in two companies (52%) half a year ago.

The global situation is similar, with the willingness to create more jobs having declined from 45% to 28%. Both globally and in Switzerland, managers regard increasing political instability as the greatest economic risk for the next 6 to 12 months. Swiss companies are feeling particularly concerned by the economic situation in the eurozone: 26% of companies see this as a major risk (autumn 2015: 8%). For one quarter of managers (Switzerland: 23%, globally: 26%), heavily fluctuating currency rates and volatile commodity prices also represent a heightened risk. Many external factors currently hinder confidence in the global economy. The growth rates in the BRIC countries (Brazil, Russia, India and China) do not look promising at present, while the European economy is having a hard time getting untracked. The entire European Economic Area is being put to the test by the potential withdrawal of the UK from the EU, and by disagreements over the refugee issue.

Adjusted M&A expectations
In contrast with the highly positive view taken last autumn, various companies around the world have scaled back their plans for mergers and acquisitions. However, the figures still reflect a positive general attitude, as many more companies continue to anticipate more, rather than fewer, transactions. Overall, 39% of global respondents expect increased activity, 5% expect decreased activity, and half expect no change. Swiss respondents took a similar view of global developments. In their domestic market, only 16% (autumn 2015: 40%) of Swiss managers expect increased M&A activity.

More and larger individual acquisitions planned
In autumn 2015, the Swiss managers surveyed did not anticipate any deals worth at least USD 1 billion. In the current study, however, 18% of Swiss companies expressed a desire to make individual acquisitions in the range of USD 1 billion or more. Internationally, this was planned by 12% of companies (autumn 2015: 3%). In terms of individual acquisitions, around two thirds of Swiss companies focus on the middle range of USD 250 million to USD 1 billion. Internationally, nearly half of companies (49%) expressed a desire to transact deals in the range of up to USD 250 million. “There is a continuing trend towards larger deals. The number of transactions in company pipelines has also developed positively, with companies working on three to four transactions in parallel, as opposed to only one or two transactions half a year ago. We expect to announce some deals with well-known Swiss companies in the near future,” says Sauser.

Domestic market still favored investment location
Globally, the top three investment markets are currently the US, the UK and India. Swiss companies, meanwhile, continue to invest primarily in the domestic market. The UK, India, the US and neighboring Germany also remain popular investment locations, offering attractive acquisition candidates. “It is still the case that Swiss companies often tend to effect transactions domestically, while also acquiring more companies abroad than do foreign companies in Switzerland,” says Sauser.

OECD guidelines influence Swiss companies
Globally, the new OECD guidelines on Base Erosion and Profit Sharing (BEPS) seem not to have exerted much influence so far. Over half of the managers surveyed are not taking the consequences into consideration. Around one third are considering the possible consequences, but have not yet changed their current acquisition strategies. In Switzerland, meanwhile, 12% of respondents have already refrained from an acquisition due to the new guidelines, while 14% of companies have adapted the structure of planned acquisitions. “These results are not necessarily surprising, as acquisitions are not primarily made on the basis of tax conditions. The guidelines furthermore only represent recommendations that remain to be implemented by the individual countries,” says Rainer Hausmann, Partner in International Tax Services at EY Switzerland.

On the EY Global Capital Confidence Barometer
For the EY Global Capital Confidence Barometer, over 1,700 managers in major companies are surveyed twice annually on a global and cross-sector basis. This is the 14th half-yearly Barometer in the series, which was launched in November 2009. The participants in this 14th edition were surveyed between February and March 2016. The Barometer is intended to measure the degree of confidence expressed by companies in the global and domestic economic outlook. It also aims to provide some insight into business objectives for the next 12 months, while identifying new capital practices that can be used by companies to create a competitive advantage as the global economy continues


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The EY organization is represented in Switzerland by Ernst & Young AG, Basel, at ten locations, as well as by Ernst & Young AG, Vaduz, in Liechtenstein. In this publication, «EY» and «we» refer to Ernst & Young Ltd, Basel, a member firm of Ernst & Young Global Limited.