3 minute read 12 Dec 2019
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Peruvian executives shift their focus from M&A to building resiliency

By

Enrique Oliveros

Ernst & Young Asesores Empresariales S. Civil de R.L., (Peru) Lead Partner, Transactions & Corporate Finance Services

Experienced investment banker with cross-border and multi-industry proven track record. Big soccer fan and passionate reader.

3 minute read 12 Dec 2019

Digital investments remain a top M&A priority for companies in Peru, with a majority looking to buy versus build.

Six months ago, we wrote about the overwhelming confidence among Peruvians as the country’s political concerns seemed to have stabilized. For the latest EY Global Capital Confidence Barometer, we surveyed Peruvian executives in August and September 2019, at a time when political uncertainty had resurfaced.

According to our recent M&A survey, these renewed concerns have impacted Peruvian executives’ appetite for dealmaking, with 39% saying they will actively pursue M&A in the next 12 months, versus 69% in April 2019. Although they may be pressing pause on dealmaking for now in favor of future-proofing their businesses, they do feel optimistic about M&A in the future, with nearly three-quarters saying that they expect the domestic M&A market to improve over the course of the coming year.

Domestic M&A outlook

74%

of Peruvian respondents expect the domestic M&A market to improve in the next 12 months.

Consistent with their focus on building resiliency, of the Peruvian companies that are pursuing M&A, 25% are targeting assets that can help them to respond to regulatory changes or secure their supply chain; 22% are looking to acquire technology or new production capabilities. With continued private equity deal activity, 9 out of 10 Peruvian executives expect to see increasing competition for assets in the next 12 months. Private equity (PE) can bring a renewed focus on value and potentially higher multiples to the sales process.

Peruvians remain bullish on economic outlook and their own growth prospects

Although the political uncertainty in Peru may have dampened executives’ enthusiasm for M&A, they remain confident in their outlook on the local economy. Ninety percent of Peruvian executives say their perspective on the local economy is improving. Similarly, Peruvian executives express bullishness across a range of macroeconomic fundamentals — 88% say they expect corporate earnings to improve; 84% feel positive about short-term market stability. This is consistent with their near-term performance outlook, where 84% expect their sales to increase and 87% anticipate higher profits in the coming year. These sentiments reflect the broader economic sentiment that the Peruvian economy has regained some speed in the third quarter of 2019, based on solid consumer spending and improvements in employment.

Digital investments remain a top priority, with a majority looking to buy versus build

With an anticipated rise in sales and profits, Peruvian companies are looking to continue their investment in digital technology to maximize their advantage. Although 65% of executives say their digital capabilities are infused throughout the business, there is a feeling that this perception is more aspirational than actual. Nevertheless, three-quarters of Peruvian executives say they are devoting 25% or more of their annual investment capital to digital technology. Of this investment, 45% say they will spend 25% or more on new growth opportunities. Peruvian executives plan to invest in technologies that both accelerate growth and protect the business — from improving the customer experience and creating new products and services, to increasing internal efficiencies and reducing risks.

Where global executives are planning to both build and buy the technologies they need, Peruvian companies are more firmly inclined to buy, with two-thirds saying they will invest in digital assets through joint ventures, acquisitions and external venture funds. New anti-monopoly regulation is set to take effect in August 2020 which could add a boost to M&A in the coming months.

Technology-driven M&A

90%

of Peruvian executives expect an increase in cross-sector M&A driven by technology and digitalization.

Peruvian companies look to adopt a broader range of reporting

With increasing pressures to take a more holistic view of value creation, Peruvians are seeking to improve their ability to measure their performance in the areas of talent and social value. With nearly half (48%) of Peruvian executives acknowledging that they have difficulties hiring and retaining staff, this measure is becoming increasingly important. Equally pressing, however, is the need for better metrics to evaluate social value — only 16% currently have metrics in place to measure their value in this regard.

The best businesses are defined by more than their short-term profitability. They drive broad-based prosperity by creating value for shareholders, customers, employees and society alike. Peruvians are instilling the right metrics to demonstrate their long-term value to all stakeholders.

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

Enrique Oliveros

Ernst & Young Asesores Empresariales S. Civil de R.L., (Peru) Lead Partner, Transactions & Corporate Finance Services

Experienced investment banker with cross-border and multi-industry proven track record. Big soccer fan and passionate reader.