Prudent dealmaking, not M&A at any cost
These concerns are having a tangible business impact. When asked whether geopolitical challenges were altering strategic investment plans, an overwhelming 93% of US executives said yes. And the largest plurality of these respondents (41%) said they had in fact delayed a planned investment.
This tracks with what we at the global EY organization have observed. As recently as six months ago, the marketplace seemed to penalize companies that sat on the sidelines and did not pursue M&A or a strategic alliance. Now, companies are compelled to do the right deal, and caution is more of a virtue. CEOs want to make the smart bet, not just any bet.
The deal market reflects this caution. Year on year, both M&A volume and value have broadly decreased — the former down by 39%, the latter by 25% (as of August 2022). The aforementioned cost of capital, amid rising interest rates, is surely a factor. Median deal multiples have remained relatively resilient in the Americas, but they vary by sector — for example, sectors that have contracted in 2022 included automotive, financial services, industrials and life sciences.
On the other hand, our survey finds executive pragmatism has not dimmed overall boardroom optimism. Majorities of respondents expect improvement in revenue and profit growth and in overall economic conditions. Capital commitment is similarly robust, as 69% of CEOs say they will increase their digital and technology investment over the next six months. The recently passed CHIPS and Science Act, which addresses the nearly two-year global chip shortage stemming from COVID-fueled supply chain issues, will likely spur scores of acquisitions and joint ventures for U.S. companies. Finally, the persistence of corporate venture capital indicates that CEOs see these vehicles as another means to dealmaking, as internal VC funds tend to be more resilient in a challenged dealmaking environment.
So, while 2022 will be remembered as a unique year of diffuse challenges, corporate leaders are building for the future — even as they manage everything, everywhere, all at once.