4 minute read 21 May 2019
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Peruvian executives are universally confident about growth and M&A prospects

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.

4 minute read 21 May 2019

M&A appetite in Peru is at historic heights, with 69% of executives indicating they will be pursuing M&A in the next 12 months.

With political uncertainty behind them, Peruvian executives are overwhelmingly confident in their businesses’ performance and growth potential. This confidence is propelling M&A appetite in Peru to historic heights, according to the latest EY Global Capital Confidence Barometer.

Bullish economic outlook raises expectations for double-digit growth

Despite slowing economic activity at the beginning of 2019 stemming from a decline in public investment and mining production, every Peruvian executive we surveyed perceives both the global and local economies as improving. Peruvians expressed similar optimism across key economic indicators, with between 97% and 100% saying equity valuations, corporate earnings, short-term market stability and credit availability are trending positive.

This bullish view of the economy has 97% of Peruvian executives surveyed expecting revenue growth between 6% and 15% in the coming year; of these, 64% project growth between 11% and 15%, significantly more than their global peers (42%).

Revenue growth expectations

97%

of Peruvian executives surveyed expecting revenue growth between 6% and 15% in the coming year.

M&A appetites reach new heights, with more room to grow

A positive economic outlook and robust growth projections have sharply elevated M&A appetites among Peruvian executives, with 69% of executives indicating they will be pursuing M&A in the next 12 months, up from 44% a year ago. Fuller pipelines and an increase in anticipated deal closings underpin a more active deal market and help explain why 93% of Peruvian executives expect the domestic M&A market to improve in the coming year.

M&A expectations

69%

of executives indicate they will be pursuing M&A in the next 12 months, up from 44% a year ago.

Given the appetite level for M&A, 9 out of 10 Peruvian executives surveyed expect an increase in competition for available assets. While a majority (63%) expect competition to come from corporate buyers as Peruvian companies look to reshape their portfolios, 37% anticipate more private equity players will be looking to put increasing amounts of dry powder to work. Private equity firms working in Peru have a lot of money on hand and are eager to invest.

Almost two-thirds (62%) of Peruvian executives say they will be looking at cross-border opportunities, with the US as their top preferred destination, followed by Peru, the UK, China and Brazil.

Peruvian executives may be confident, but they are aware of potential headwinds ahead

Although Peruvian executives have a lot of confidence in their growth prospects, they are aware of the potential headwinds ahead. More than their global peers (39% of Peruvians vs 33% of global executives), Peruvian executives perceive a slowdown in economic activity to be the greatest risk to the growth of their business.

For one-quarter of executives (24%), supply chain disruption is also a concern. As a result, nearly two-thirds (63%) are considering an acquisition to secure their supply chain.

Organic opportunities will dominate the growth agenda, aided by substantial investments in technology

While Peruvians may have keen appetites for M&A, 70% indicate the majority of their growth will continue to come from organic opportunities. In terms of where that growth will come from, Peruvian executives signal a focus on reshaping operations through both traditional and transformational investments.

  • Nearly one-quarter (23%) will be investing in digital and technology.
  • One in five (20%) have their eye on more traditional investments in existing operations.
  • With digital and technology top of mind, all Peruvian executives surveyed indicate they will be making significant investment in technology.

Primary focus areas include improving financial data access and analysis, and creating new products or services. For the latter, Peruvian executives intend to deploy automation and AI, with 93% looking to develop these capabilities in-house. These technical priorities support their more strategic priorities, with 30% indicating they want to expand into an adjacent sector and 27% looking to develop new products and services as a means to achieving their growth ambitions.

In addition to focusing on technology on back-end efficiencies and consumer-centric opportunities, Peruvian executives see technology playing an increasing role in their employment strategies. Specifically, executives are looking to automation and AI for some routing processes as labor becomes scarce and the battle for talent intensifies.

Peruvian executives expect digital technology, transformation and innovation to drive value creation

Looking ahead, Peruvian executives, more than their global peers, indicate that they will be prioritizing the impact of digital technology and transformation in their businesses on their boardroom agenda in the next six months. Longer term, a clear majority of the Peruvian executives surveyed see innovation as a critical element of value creation for their organizations, along with society and the environment, which a substantial minority see as fundamental to their future.

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.