Does digital support your growth and M&A strategy or define it?

By

Doug Jenkinson

EY Canada Transaction Advisory Services

Extensive M&A and divestiture experience both within North America and globally in a variety of industries. Specializing in extractive industries and foreign investment into emerging markets.

2 minute read 11 Dec 2019

With increasing market uncertainty, digital provides Canadian companies with opportunities to drive performance.

In the 21st edition of the EY Global Capital Confidence BarometerCanadian respondents are expressing the strongest economic outlook in the survey’s history, with 100% expecting improvement in the domestic economy and 99% in the global economy over the next 12-months. Supporting this strong outlook, fewer than 20% of executives are predicting an economic slowdown before the end of 2021.

Canadian respondents are also seeing optimism at the micro level. When analyzing their own operations, 88% of Canadian respondents expect revenue growth and 91% expect net profit growth over the next 12 months. However, they also cite internal operations, such as a lack of internal inertia and a scarcity of talent, as the main challenges to their growth agenda.

Despite economic optimism, Canadian executives are cautious on M&A

Despite the economic optimism, Canadian respondents are expressing caution around deal intentions — the centerpiece metric of the Barometer. For the first time since 2014, the number of respondents actively pursuing M&A dropped below 45% (35%). This result is heavily influenced by the lack of M&A appetite in the mining and metals sector, where only 22% of respondents are actively pursuing deals.

There is optimism across many other deal metrics — for example, only 19% of respondents expect an M&A market slowdown — but respondents are still hesitant with their own transactions. Perhaps this can be attributed to uncertainty on the horizon, as 55% of executives cite geopolitical impacts — including trade disputes, climate change-related policies and regulatory uncertainty — as the greatest external risk to their business.

Greatest external threat

55%

of Canadian respondents cite geopolitical impacts as the greatest external risk to their business.

A positive development for Canadian M&A is that Canada is once again a Top 5 global investment destination, after slipping out of the Top 5 in our last survey.

Finally, political and social pressure to demonstrate enterprise purpose has never been greater. Many companies recognize the link between social purpose and economic value and are implementing strategies to measure and report on value to their people, their customers and their communities. More than 90% of Canadian respondents have social benefit measurement and reporting in place, or plan to have it in place within the next 12 months. We see this sense of purpose being built into respondents’ deal strategies, with the evaluation of social reputational risks increasingly playing a role in the due diligence process.

Summary

The EY Global Capital Confidence Barometer (pdf) 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

Doug Jenkinson

EY Canada Transaction Advisory Services

Extensive M&A and divestiture experience both within North America and globally in a variety of industries. Specializing in extractive industries and foreign investment into emerging markets.