- Seventy-nine percent of companies with revenues greater than US$5 billion say they will pursue M&A, while 64% expect to see more megadeal (US$10 billion and above) M&A activity in the next 12 months.
- US executives are bullish in their growth outlook, with 96% indicating the domestic economy will continue to improve, a 27% increase from one year ago.
Encouraged by positive expectations and rising corporate confidence in the world’s biggest deal market, more than half (52%) of US executives expect to pursue M&A over the next 12 months, according to Ernst & Young LLP’s (EY) latest twice-annual Capital Confidence Barometer (CCB). Now in its 10th year and 20th installment, deal intent is an indicator that has remained relatively flat over the past few editions of the CCB and has settled into a “golden mean” for the decade’s deal market.
“We launched the CCB in 2009, in the wake of the global financial crisis, and the initial results reflected great unease in the market,” said Bill Casey, EY Americas Vice Chair, Strategy and Transactions. “Ten years on, this latest survey has shown us that business confidence, corporate strategy and market disruption have evolved dramatically. Today’s business leaders are strategically redeploying capital to help future-proof their business models and drive growth. Executives have learned from the past decade that geopolitical and macroeconomic disruption cannot stand in the way of their competitive strategies, and they continue to execute on deals that are in line with their aspirations.”
Confidence in the domestic economy is strong among the US executives that EY US surveyed: almost all (96%) believe conditions are improving. However, executives are still cognizant of great external risks to the growth of their businesses, citing any slowdown of growth (33%) or curtailing of credit availability (21%) among their main concerns. To stay ahead of these risks and keep up with the speed of disruption, companies are realigning their portfolios far more frequently, with 52% of corporate executives now reviewing their portfolios either quarterly or continuously for risks, opportunities and inefficiencies. In addition, over the next 12 months, 41% of US executives plan to identify and reduce overhead and administrative costs to build resilience into their companies’ profitability and cash flow.
Technology and talent at the forefront for dealmakers
A clear majority of US executives (94%) are planning significant investments in technology this year, redeploying capital to create new services or products (22%) and to improve the customer experience (21%). In a business environment where the battle for talent is intensifying and technological advancement outpaces many corporate adopters, executives felt that acquiring technology and talent would bring the most value to their companies (24%) and see these as the most influential factors to consider for future deals (23%). Technological innovation also takes priority over the evolving regulatory environment, with a large majority (71%) citing it as the most influential external trend influencing deal strategies.
“Technology has eroded barriers to entry for many industries, forcing US executives to keep their strategies competitive and their portfolios in lockstep, regardless of what’s happening on a macroeconomic or geopolitical scale,” said Casey. “Technology, automation and artificial intelligence are being applied to more and more routine processes, allowing room for talent acquisition and development that will fill new roles focused on strategic issues that will help drive innovation and creativity.”
Corporates match private capital competition in pressure to deploy capital
Competition for high-value assets is expected to intensify going into 2020, given corporates’ drive to reshape portfolios coupled with private capital’s record stockpile of dry powder. Just over half of US executives (52%) expect most of the growing competition for assets to come from private capital, but nearly half (48%) also anticipate increased competition from corporate buyers. Despite this rise in corporate competition, 68% of executives still expect private equity to remain a major acquirer of assets in the next 12 months.
“After a tumultuous decade, battle-scarred leaders are now tested and more confident—and taking smarter risks that are material to their Capital Agendas,” said Casey. “Corporates are sensitive to compressed timelines and pressure to achieve growth, translating to a more aggressive call to action. Accordingly, private equity buyers are taking note and bracing for greater competition from corporate strategists in the coming year.”
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