5 minutos de lectura 30 oct 2019
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Eurozone C-suite looks to M&A to create their own tailwinds

For Eurozone execs, the need to transform outweighs the risks of uncertainty, so the drumbeat of M&A continues.

According to the latest edition of the EY Global Capital Confidence Barometer, Eurozone companies face a range of geopolitical, regulatory, trade and tariff challenges and are choosing a more proactive response. With the need to transform increasingly outweighing the risks of uncertainty, executives continue to see dealmaking as a powerful means to reshape portfolios and accelerate the transformation imperative.

Eurozone companies express concern about economic growth and a near- to mid-term slowdown

Although two-thirds (65%) of Eurozone executives still remain positive about global economic growth, this is down almost 20 percentage points from October 2018, and 11 percentage points lower than the perspective of their global peers. Of equal interest, more than one in five (21%) express concern that the global economy is actually declining, versus 12% of global respondents.

Sentiment is positive across the Eurozone as a whole, with 70% of Eurozone executives indicating that they see their economy as growing, up slightly from a year ago. However, if we drill down to a country level, things are less rosy than they seem. Germany and Spain are the most pessimistic, with 20% of respondents in each country expecting their local economy to decline, a significant increase from six months ago, and four percentage points higher than the Eurozone average. French executives are feeling slightly more positive than the Eurozone average, with 13% seeing a decline in the economy, while 13% expect things to remain stable. Interestingly, Italy is the most optimistic of the Eurozone countries, with only 8% expecting their economy to decline, while 25% expect it to remain stable.   

Meanwhile, across the Eurozone, concerns about an economic slowdown are on the rise. More than three-quarters (76%) of Eurozone executives (versus only 46% of global executives) expect an economic slowdown in the near to mid term. Twenty-five percent expect this to happen within the next year, versus 34% of global executives. A significantly larger percentage (60% versus 45% of global executives) expect a slowdown to occur in 2021.

Economic slowdown

76%

of Eurozone executives expect an economic slowdown in the near to mid term.

Individual countries are more concerned. With Spain’s economic growth slowing more sharply in the second quarter of 2019 than expected, 87% are bracing for an economic slowdown. Risks around a hard Brexit, ongoing US-EU and US-China trade tensions, slowing economic activity in the Eurozone and persistently high unemployment rates may be contributing factors in 83% of French executives anticipating an economic slowdown. In Germany, it is little surprise that 80% see an economic slowdown ahead as Europe’s strongest economy falters and business confidence drops to its lowest level since 2012. Interestingly, Italy, which has seen its fair share of economic woes in the last few years, is slightly less concerned, with 75% seeing an economic slowdown ahead.

More Eurozone companies are looking to M&A to address uncertainties

Fewer Eurozone executives expect improvements in financial performance over the next 12 months than their global peers (54% versus 69% of global executives). In response, they are taking a more proactive stance in dealing with what they perceive to be the key barriers to growth — regulatory uncertainty (18%), geopolitical uncertainty (17%), supply chain (13%) and climate change (12%).

While the percentage of Eurozone companies expecting to pursue acquisitions has dropped eight percentage points from October 2018, almost two-thirds (63%) anticipate that M&A will play a key role in their growth strategy in the next 12 months. Only a little more than half (52%) of global executives expect the same.

M&A outlook

63%

of Eurozone executives plan to actively pursue M&A in the next 12 months.

For 43% of Eurozone executives, planned M&A activity will primarily focus on acquisition of transitional capabilities that will change how the company operates (versus 38% of global peers). Key drivers of M&A activity include: response to regulatory or tariffs and trade, or to secure the supply chain; and acquiring technology, new production capabilities or innovative startups.

More Eurozone companies are looking closer to home for investment opportunities, with four of the top five preferred destinations being in Europe — Germany (1), UK (2), France (3) and Spain (5). In addition to M&A, 82% are proactively looking to outsource or divest some of their current operations, versus only 55% of global respondents.

All of these actions are helping Eurozone companies to more proactively address the challenges that lie ahead and position them for the transformation that will propel their future growth.

Despite a proactive approach to transformation, talent remains a hindrance to growth

As responsive as Eurozone companies are being in preparing for the myriad geopolitical, regulatory and trade pressures they face, tight labor markets are adding to their growth challenges. Although the threat to jobs from technology is turning out to be less of an issue than many had predicted, Eurozone companies are finding it more difficult to attract and retain talent with the right skill to benefit from the efficiencies AI, automation and robotics are generating.

More than their global peers, Eurozone executives (70% versus 61% of global executives) say that they are struggling with their talent agenda. Of those, 34% say their biggest challenge is finding talent with specific technical skills relevant to their core business, while 28% admit struggling to hire and keep digital or technology specialists.

Talent agenda

70%

of Eurozone executives admit they are struggling to attract and retain top talent.

Eurozone companies are less aggressive in their pursuit of digital transformation

Although Eurozone executives agree that transformation is essential to growth, EY results suggest that Eurozone companies are pursuing digital transformation less aggressively than their global counterparts.

Where 76% of global executives say that they have a clear vision for digital technology’s transformational impact on their business strategy, just 68% of Eurozone executives say the same. Further, only 44% of Eurozone respondents say that their digital capabilities are infused throughout the business, versus 51% of global respondents.

Despite concerns of a near- to mid-term global economic slowdown, the M&A drumbeat will continue

As we look ahead, we expect that as the competition for technology and talent intensifies, and the need for speed tilts decision-makers toward buying versus building, Eurozone companies will continue to consider M&A as a powerful means to accelerate growth, reshape portfolios and power their transformation agenda.

Further, despite geopolitical challenges and recessionary fears, there is more than enough capital looking for an investment home in the global economy — including US$8t with companies, US$1.3t in private equity, US$8t in sovereign wealth funds and more than US$8t in family offices. Investable capital or dry powder has increased 31% since 2013 (the beginning of the current M&A upturn) and over 3% from last year. As such, we expect the drumbeat of M&A to continue for the foreseeable future.

Key takeways

Here are five critical questions Eurozone executives should ask themselves to drive better M&A in today’s deal economy.

  1. Can you measure your relevant economy? GDP statistics provide an overarching view of the macro economy within the Eurozone, but by fully understanding their individualized economic ecosystem and addressable market, Eurozone countries can facilitate better capital and resource allocation to support sustainable long-term growth.
  2. How can value be more than just a number? Societies are changing how they view companies. In return, Eurozone companies need to be able to measure and communicate their performance beyond financial value to shareholders. They need to be able to demonstrate customer, talent and social value as well to a broad array of stakeholders and society as a whole.
  3. Can you predict your own future trade flows? As the Eurozone continues to navigate the persistent uncertainty of Brexit, it is more important than ever for Eurozone countries to understand the future interplay between supply chains and market access. Doing so can help executives better manage risk and accelerate opportunities for growth.
  4. Is digital more than a bit part? Two-thirds of Eurozone executives say their companies are investing up to 24% of their investment capital on digital and technology that lead to new growth opportunities. But is it enough? The right digital transformation strategy should be at the heart of boardroom planning as the key to unlocking growth opportunities in an increasingly virtual world.
  5. Can you afford to walk away from the deal table? With the pace of innovation unrelenting, Eurozone companies understand that the need for transformation outweighs the risks of uncertainty. For many Eurozone executives, buying trumps building when the goal is to stay ahead of the curve. Walking away now could mean missing an opportunity that causes the company to fall behind rather than moving full speed ahead.

Resumen

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.

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