5 minute read 15 Apr 2019
see lions above school baitfish

Why dealmaking is expected to come in many forms in 2019

By

Steve Krouskos

EY Global Vice Chair – Transaction Advisory Services

Driving growth and investment priorities for global EY TAS. University of Florida alumnus. Son, husband and father of four.

5 minute read 15 Apr 2019

Global M&A market is expected to remain at elevated levels while the imperative to manage emerging opportunities and risks boosts M&A appetite.

In an age of transformation, buying rather than building can unlock future value creation at speed.

Competitive dynamics as they relate to technology and globalization make M&A more of an imperative than an option. In response, companies are embracing uncertainty rather than being unsettled by it according to the EY Global Capital Confidence Barometer.

Technology is making the world smaller, connecting geographies and converging sectors

Technology is at the heart of today’s deal rationale. Whether it is entering a new market, acquiring new talent or technology, expanding into adjacent industries or moving at pace with customers, technology is the fulcrum of heightened M&A intentions.

The other significant factors are the needs to mitigate risks and navigate around regulatory regimes.

What are the main strategic drivers for pursuing acquisitions?

Focusing integration on unlocking new sources of growth will power value creation

Creating value from commercial opportunities is now ahead of operational efficiencies. Traditional deal strategies have often centered on bottom-line synergies to create value. Recently, acquiring new technologies, production capabilities and talent have been seen as pools of future value. But executives are signaling that it will be market expansion, top-line synergies and access to differentiated customers that they will be focusing on to elevate deal success.

Executives should recalibrate the lens through which they assess potential targets and deals. They should assess how likely they are to open new routes to growth, markets and customers in an increasingly complex operating environment.

Based on your experience of completed deals in the past three years, where have you derived most value - and where would you expect to create more value from future acquisitions?

Dealmaking expected to come in many flavors in 2019

With a strong M&A appetite prevailing in a highly competitive landscape, respondents expect an increase in competitive and unsolicited deals. With competitive advantage and future market share front of mind, executives expect to see many peers targeting the right asset at the right time — and in many cases the right asset is the same asset.

Following the slowdown in mega-deal activity in the 2Q18, respondents are now anticipating an uptick in M&A above US$10b in the near term.

Do you agree or disagree with the following statements about the M&A market?

Despite economic and geopolitical concerns, Europe emerges as the top cross-border destination

Higher valuations and increasing regulatory challenges prompt shift from North America to Western Europe. The most recent Barometer had North America at the epicenter of cross-border dealmaking. Now, the focus for executives targeting overseas assets has shifted to Western Europe. While growth has been stronger in the US than in the EU for many years, now this has had an impact on relative valuations. European assets look attractive by US standards. Together with tightening oversight of inbound acquisitions by the US and a window of opportunity before European authorities might enact similar stringent rules, dealmakers look set to act while the window is still open.

The UK, Germany and France appear in the top five most targeted countries. Within them, consumer products, automotive, industrials and financial services are sought-after sectors. These are industries in which European companies have particular strengths (consumer and industrials) or look likely to be entering a period of consolidation (financial services and automotive).

While regulatory challenges look set to be the main determinant of cross-border success in M&A deals getting over the line, it may prove to be a busy 2H19 in European dealmaking.

Top investment destinations 

Despite continued uncertainty stemming from its intention to leave the European Union (EU), the UK climbs to the No. 1 spot in the top investment destinations for the first time in the survey’s 10-year history.

In addition, China climbs back into 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 a top destination of choice for 9 of the 10 most active cross-border investors, including China.

  • The 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 — EY framework for strategically managing capital. It is a regular survey of senior executives from large companies around the world, conducted by Thought Leadership Consulting, a Euromoney Institutional Investor company. Our panel comprises select global EY clients and contacts and regular Thought Leadership Consulting contributors.

    • In February and March, we surveyed a panel of more than 2,900 executives in 47 countries; 68% were CEOs, CFOs and other C-level executives.
    • Respondents represented 14 sectors, including financial services, consumer products and retail, technology, life sciences, automotive and transportation, oil and gas, power and utilities, mining and metals, advanced manufacturing, and real estate, hospitality and construction.
    • Surveyed companies’ annual global revenues were as follows: less than US$500m (25%); US$500m–US$999.9m (24%); US$1b–US$2.9b (21%); US$3b–US$4.9b (9%); and greater than US$5b (21%).
    • Global company ownership was as follows: publicly listed (54%), privately owned (40%), family owned (4%) and government or state owned (2%).

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

Steve Krouskos

EY Global Vice Chair – Transaction Advisory Services

Driving growth and investment priorities for global EY TAS. University of Florida alumnus. Son, husband and father of four.