CEOs bet big on generative AI to gain competitive edge despite hurdles to adoption and M&A challenges

CEOs double down on organic investments, but M&A appetite declines to 9-year low

As business leaders continue to grapple with macroeconomic headwinds, regulatory changes and geopolitical volatility, many still anticipate high levels of growth in the near term and are doubling down on investments in R&D and capex.

The EY survey reveals that CEOs continue to be on the offense when investing for the future, with a clear majority (89%) planning some kind of transaction in the next 12 months. However, M&A deal intentions dipped to the lowest level since 2014 with only 35% of CEOs planning M&A in the next 12 months. This can be attributed to the current geopolitical and macroeconomic uncertainty and also reflects the confusion on AI targets and the real-world drop-off in AI-focused M&A following a surge earlier this year.

The appetite to pursue M&A is far higher in the Americas region (47%) than in EMEA (29%) or Asia-Pacific (25%), reflecting the strong uptick in dealmaking seen in the region in 3Q23, especially deals involving US companies.

Guerzoni says, “The slowdown in M&A more broadly can be attributed to the current geopolitical and macroeconomic uncertainty, including the high-level cost of debt. The survey makes it clear that other two factors are kicking in: the softening in technology dealmaking, as activity normalizes and returns to lower pre-pandemic levels, and CEOs trying to understand the impacts of GenAI.”

Half of CEOs (50%) plan to expand operations in the next 12 months outside of their headquartered location. Despite lower-than-expected growth in China, Asia-Pacific has emerged as a prominent destination, with China, Australia, India, Japan and Singapore emerging as they top five destinations when asked where they would look to outside of their headquartered market.

Maximizing growth and profitability to fund transformations

The past four years have seen business leaders reacting quickly to shifting consumer behaviors, a resetting and reconfiguring of supply chains, an upending of the global energy market, and rapid changes in the growth, inflation and interest rate environment. Yet, a significant number of respondents anticipate higher levels of growth (66%) and profitability (65%) in 2024 compared with 2023.

With global economic growth expectations more likely to be revised on the downside in the near-term, CEOs should consider whether their own growth expectations reflect the slower global market projected over the next five years.

Guerzoni says, “It is possible that those CEOs planning for higher growth have already made the hard choices during the past few years, both in terms of competitive positioning and potential growth opportunities. For those yet to do so, challenging the existing business model based on the current and anticipated market conditions is an imperative step that needs immediate attention.

“CEOs need to scrutinize every area of their operations, from both a product and geographic angle, and decide which underperforming areas to jettison. Maximizing growth and profitability to fund this transformation will be the key to unlocking long-term value creation for companies,” says Guerzoni.

To read the full report, please visit: ey.com/CEOOutlook

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About the EY 2023 CEO Outlook Pulse

On behalf of EY, in September and October 2023 FT Longitude, the specialist research and content marketing division of the Financial Times Group, conducted a survey of 1,200 CEOs from large companies around the world. This anonymous online survey aims to provide valuable insights on the main trends and developments impacting the world’s leading companies as well as business leaders’ expectations for future growth and long-term value creation. Respondents represented 21 countries (Brazil, Canada, Mexico, the United States, Belgium, Luxembourg, the Netherlands, France, Germany, Italy, Denmark, Finland, Norway, Sweden, the United Kingdom, Australia, China, India, Japan, Singapore and South Korea) and five industries (consumer and health, financial services, industrials and energy, infrastructure, technology, media and telecoms). Surveyed companies’ annual global revenues were as follows: less than US$500m (20%), US$500m–US$999.9m (20%), US$1b–US$4.9b (30%) and greater than US$5b (30%).

The CEO Imperative Series provides critical answers and actions to help CEOs reframe their organization’s future. For more insights in this series, visit ey.com/en_gl/ceo