Why US executives are focused on sustainable M&A business strategy in uncertain markets

Our M&A survey reveals that building a resilient US business means anticipating a range of scenarios.

A
s good a predictive tool as our Capital Confidence Barometer is, the executives we survey twice a year contend with a great deal that cannot be predicted: economic, geopolitical and regulatory volatility are facts of business life. Our survey respondents may feel relatively positive about the state of the markets in which they transact, but building a sustainable business means anticipating a range of scenarios. Often, US corporate leaders tell us they have to both hunker down and double down.

US executives are reshaping their business strategy for resilience and optionality

Broadly speaking, this is the story told by our latest Barometer — a bifurcated US business environment where executives are bullish on markets and prudent on dealmaking. On the one hand, economic and deal-market indicators have virtually never been this positive: near-unanimous expectations for both global and US economic growth (97% and 96%, respectively), and a massive majority (83%) expecting the US M&A market to improve in the next 12 months.

Even the speculation that has dominated US headlines throughout 2019, the possibility of a recession, seems overblown to our respondents: a large majority (78%) do not expect an economic slowdown in the near to medium term. On the other hand, deal intentions — the centerpiece metric of the Barometer — slip below the 50% mark for the first time in two years, with 46% of US executives telling us they expect to transact in the next year. 

Focusing business strategy on sustainable M&A success

US executives’ sanguine M&A intentions may be explained by the risks they see on the horizon, which belie their macro positivity. Nearly two-thirds (62%) expect an increase in hostile and competitive bidding, a sign of a healthy market but one fraught with challenges and the danger of overpaying. More than half of executives (56%) cite regulatory impacts — whether trade disputes, climate-change policy or regulatory uncertainty — as the greatest external risks to their business. Of course, these external pressures cut both ways in terms of corporate strategy. Among larger companies, those with revenues above US$5 billion, a solid majority (59%) tell us they are considering M&A because of ongoing trade or tariff uncertainties.

Focusing growth strategy on M&A to build in optionality

At EY, we frequently advise companies on how to manage their business amid mixed market signals and competing priorities. The recent EY Reshaping results report finds that growing, healthy businesses must build a resilient approach: stress testing multiple scenarios, building an adaptive corporate decision-making apparatus and staffing the C-suite with the right leadership for all game plans. This Barometer finds US business leaders echoing this mindset. They are acting from a position of strength — building on successes they’ve already achieved — while being watchful for shifts on the geopolitical chessboard. They are keenly aware that risks affecting business growth can take many forms. We see this in the Barometer’s stats on technology investment: 85% of US executives say they spend just under half of total capital on technology — a plurality of this tech investment (45%) is coming via out-of-house opportunities such as joint ventures and alliances, as well as acquisitions. This is what we mean by “reshaping”: anticipating business risks and finding agile ways to grow across the market landscape.

As I often say in summarizing our Barometer, every deal is done for its own strategic reasons. Executives know that choosing not to engage in dealmaking could diminish future competitiveness; and even as conditions become challenging and unpredictable and the margin of error for M&A has shrunk, these leaders know they must strike an effective balance between resiliency and a visionary outlook. This is the mindset that empowers them to continually innovate, outpace the competition and keep growing in a global economy that will never be short of surprises.