6 minute read 17 Jan 2020
watering plants

How M&A can accelerate private company growth

By Randall Tavierne

Global EY Private Assurance Leader

Global leader helping entrepreneurs and private companies realize their ambitions. Frequent speaker on the high-growth market.

6 minute read 17 Jan 2020
Related topics Assurance Audit Growth

The speed of disruption is forcing executives to examine their portfolio more frequently for risks and opportunities.

In today’s economic climate, many private businesses are looking beyond organic growth to drive profits. While growing a business naturally can provide control and predictability over the long term, it tends to be a slow process. Improving products or services, increasing marketing efforts, and identifying new, more profitable markets may take substantial time. To accelerate growth, many private companies are seeking out strategic partnerships and acquisitions.

The 20th edition of the EY Global Capital Confidence Barometer (pdf) found that many privately held companies are laying the foundation for future growth through M&A. The speed of disruption, which businesses are now embracing rather than shying away from, is forcing executives to examine their portfolios more frequently for risks and opportunities. With these more frequent reviews, executives have come to recognize the fast growth that M&A offers. 

M&A activity

43%

of private company executives intend to use M&A as an accelerated route to reshape their portfolio in the next 12 months.

Of the 1,100 private company executives polled, 43% intend to use M&A as an accelerated route to reshape their portfolios in the next 12 months – with 45% focusing on in-country acquisitions and 55% looking toward cross-border acquisitions.

Top investment destinations

Private company leaders say that despite a continued uncertainty stemming from the UK’s intention to leave the European Union (EU), it remains one of the top destinations for investments. According to them, the top five destinations are:

  1. US
  2. UK
  3. Germany
  4. China
  5. Canada

It is interesting to see China among the top five, even as concerns about market access and reciprocity with the US and EU continue. And despite fears over protectionism, the US is the top destination of choice for many private company leaders. 

Looking at industries, private company executives in the power and utilities (P&U) sector indicate that transactions are an important part of their growth strategy, with 76% expecting to pursue M&A in the next 12 months.

Their desire to transact comes as the sector transitions from a traditional landscape to a system that will be defined by a new, changed market and technological conditions. Deal-making in 2019 will be shaped by P&U companies’ decisions around the role they intend to play in this new ecosystem.

Although M&A is an ideal option for compounding organic growth, it is imperative that private company executives mitigate any potential risks related to an acquisition deal with effective execution. The barometer found that integration remains a key risk to manage in realizing a deal’s success. With finding new sources of growth being key to creating value from partnerships and acquisitions, executives are focusing on market expansion, top-line synergies and access to differentiated customers to elevate their M&A integration. 

To accelerate growth, many private companies are seeking out strategic partnerships and acquisitions.

In working with private companies, EY teams have found that the most successful integrations are those where companies have developed an M&A plan, and created dedicated M&A teams and plans for what happens after the acquisition. These steps can help make sure that appropriate strategies are in place to identify and address synergies, opportunities and risks.

Summary

The EY Global Capital Confidence Barometer gauges corporate confidence in the economic outlook, and identifies boardroom trends and practices in the way companies manage their capital agendas.

About this article

By Randall Tavierne

Global EY Private Assurance Leader

Global leader helping entrepreneurs and private companies realize their ambitions. Frequent speaker on the high-growth market.

Related topics Assurance Audit Growth