Economic confidence and growth imperative overshadow geopolitical concerns and spur further M&A
London, 24 April 2017
- Near-record number of companies (56%) plan to acquire in the next 12 months
- Heightened geopolitical uncertainty trumped by search for growth
- UK rebounds to third most attractive investment destination globally
Global mergers and acquisitions (M&A) activity continues to gain strength following heightened dealmaking in the first quarter of 2017, according to the EY 16th Global Capital Confidence Barometer (CCB). Ongoing geopolitical uncertainty has not dented deal appetite among executives.
Based on a survey of more than 2,300 executives across 43 countries, the Barometer finds that even amid rapidly changing market conditions, 56% of companies expect to actively pursue deals in the next 12 months – up six percentage points from a year ago.
At a time of already elevated dealmaking, 36% of companies expect their deal pipelines to expand further in the next year. The vast majority (96%) of executives expect the M&A market to improve or remain stable over the same period.
This strong appetite for deals perseveres against a backdrop of geopolitical or emerging policy concerns, which are seen as the greatest risk to economic growth for 69% of businesses. Yet according to the survey, the disruptive impact of technology on potential deal outcomes and business models remains at the forefront of the minds of the majority of executives.
Steve Krouskos, EY Global Vice Chair – Transaction Advisory Services, says:
“Geopolitical and policy uncertainty is a permanent feature of the boardroom, but technology-enabled disruption poses a greater challenge to many business models. The exponential pace of disruption and transformation is compelling executives to engage in M&A. Companies need to innovate to follow rapidly changing customer preferences and buying assets can be the fastest way to radically reshape their business for future growth.”
Resurgent economic confidence and potential rewards of M&A eclipse broader risks
Uncertainty about policy and the potential of increasing intervention by governments – through new policies and regulations – are on the list of executive concerns. But dealmaking is supported by positive corporate indicators and a resurgence of economic confidence – 64% of executives see the state of the global economy as improving (up from 21% in October 2016).
Krouskos says: “Signs of an economic upturn are boosting renewed expectations for growth and further fueling deal intentions. At the same time, investor expectations have also increased. The net result is executives recognize that staying on the deal sidelines could mean they are sidelined from securing future-proofing assets.”
Investing globally in a time of rising nationalism
Fears of increasing protectionism in 2016 have morphed into uncertainty about policy that could impact global trade. However, despite trade barrier speculation, cross-border M&A has already been a hallmark of dealmaking in 2017, with a resurgence of deals between the United States (U.S.) and Western Europe. For companies expecting to do acquisitions, 36% plan to focus on domestic deals in the next 12 months as the search for growth continues overseas. Companies are looking everywhere for pockets of growth, although the main focus has shifted back to developed markets, the CCB finds.
The United Kingdom (UK) rebounds to third most attractive deal destination. It fell out of the top five for the first time in the Barometer’s seven-year history last October following the EU referendum. The U.S. (1st), China (2nd), Germany (4th) and Canada (5th) complete the top five.
Other results point to growth intentions not being curtailed by geopolitical issues. Almost three- quarters of companies (71%) say the Brexit decision has increased or had no impact on their UK investment intentions. In the U.S. there are signs that the new administration will foster further M&A – 76% believe potential policies will either increase or have no impact on deal activity.
“For many companies, cross-border deals are a necessity — successful companies will find ways to navigate challenges such as rising nationalism,” says Krouskos. “Executives are evaluating M&A across a wide range of geographies to secure market access and grow customer base.”
Portfolio optimization comes to the fore amid rapidly changing market
Amid rapid change, companies are building more agility into their strategies, with 73% increasing portfolio review processes to respond to or capitalize on disruptive forces in their sectors. Technology-fueled industry convergence and transformational customer changes are challenging executives to continually reassess and reinvent their businesses.
“Executives are also being proactive in reassessing and reorganizing their geographic footprint to be able to quickly pivot in response to any major trade policy changes,” says Krouskos. “They are looking at options given the recent political developments and may need to be able to shift operations quickly to protect globalized operations and supply chains.”
These considerations are translating into deal activity across all sectors. The top five acquisitive industries are automotive, consumer products, mining & metals, oil & gas and telecommunications.
Disruption drives deals
Buying innovation will be part of the dealmaking fabric in 2017 the Barometer finds. Disruptive startups challenge existing business models – more established companies will look to accelerate growth by acquiring innovative start-ups. These buyers will employ a range of acquisition techniques – from full asset purchases to investments via corporate venture capital arms.
Krouskos says: “For many executives today, the only constraints are the ones they create. They are imagining a future and are using buying and selling strategies to help realize this vision. Companies are playing on their own terms and utilizing more regular and rigorous portfolio reviews to be strategically nimble and opportunistic. Executives are not being distracted by policy speculation that may or may not have an impact in two years when they need to stay focused on the tech start-up that could disrupt their business in two months. M&A is both a protection against that disruption and an opportunity to disrupt the competition.”
View the survey online at ey.com/ccb.
- Ends -
Notes to Editors
EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In doing so, we play a critical role in building a better working world for our people, for our clients and for our communities.
EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.
This news release has been issued by EYGM Limited, a member of the global EY organization that also does not provide any services to clients.
About EY Transaction Advisory Services
How organizations manage their capital agenda today will define their competitive position tomorrow. Our more than 13,000-strong team across the globe works with our clients to help them make better and more informed decisions about how they strategically manage capital and transactions in a changing world. Whether you’re preserving, optimizing, raising or investing capital, EY’s Transaction Advisory Services bring together a unique combination of skills, insight and experience to deliver tailored advice attuned to your needs — helping you drive competitive advantage and increased shareholder returns through improved decision-making across all aspects of your capital agenda. EY’s Transaction Advisory Services was named the Accountancy Firm of the Year in Europe by Mergermarket in 2016, 2015, 2014, 2013, 2012 and 2010.
About EY Global Capital Confidence Barometer
EY’s Global Capital Confidence Barometer is a biannual survey compiled by the Euromoney Institutional Investor Thought Leadership of more than 2,300 senior executives from large companies around the world and across industry sectors. This is the 16th semiannual CCB in the series, which began in November 2009; respondents for the 16th edition were surveyed in March and April 2017. Respondents represented 18 sectors, including financial services, consumer products and retail, technology, life sciences, automotive and transportation, oil and gas, power and utilities, mining and metals, diversified industrial products, and construction and real estate. The objective of the Capital Confidence Barometer is to gauge corporate confidence in the global and domestic economic outlook, to understand boardroom priorities in the next 12 months and to identify emerging capital practices that will distinguish those companies building competitive advantage as the global economy continues to evolve. ey.com/ccb #EYCCB