Dealmakers maintain M&A focus after US tax reform and amid political uncertainty
When we surveyed US decision-makers for our semiannual Global Capital Confidence Barometer in the early fall of 2017, their mood was grim. Months of debate in Washington had culminated in a failed bill to remake US health care, and observers began to wonder if the current administration and a sympathetic Congress were capable of passing any major legislation. Facing macroeconomic and regulatory uncertainty, US dealmakers cut their M&A intentions to their lowest level in approximately three years.
Then, two months after our October Barometer was issued, Congress got US tax reform over the finish line. The implications of this once-in-a-generation event, for both balance sheets and M&A, are still being sorted out four months later. But merely removing uncertainty surrounding tax reform buoyed spirits over the holidays and continuing into January 2018. At this writing, however, the markets have turned bearish again, as renewed US protectionism and escalating global trade tensions have erased the equity-market gains of recent months.
The result of this topsy-turvy six months is evident in the 18th edition of our Capital Confidence Barometer. US deal intentions are healthier, back up above 50% — but nowhere near the highs of 18 months ago, when some three-quarters of companies told us they planned to pursue a deal.
Of course, in good times and bad, C-suites need to remain above the macroeconomic fray, even as they search every corner of their portfolios for both organic and inorganic growth opportunities. That’s been true this entire decade, even when the Great Recession slowed our momentum. When the story of the 2010s is written, it will be a tale of two markets. The first half was marked by restraint and a slow return to confidence. The second half has been fueled by megadeals and disruption — from technology, from customers and from shareholder activists — all of which have compelled boards to step on the gas, even when assets seemed overly rich.
Even as they express caution about their own portfolios, US decision-makers say corporate and dealmaking metrics are all fairly robust. Fully two-thirds of respondents say portfolio transformation — including both buying and selling of assets — is the most prominent topic on their boardroom agenda. Competition for assets is still a fact of life: of the 66% of respondents who have canceled a deal in the last year, more than two-thirds cited issues with competition or valuations. And, contrary to the popular media image of corporates unwilling to hire at scale, well over half of our US respondents tell us the main strategic driver for M&A is acquiring talent.
One thing has held true since we launched the Barometer nine years and 17 editions ago: every merger, acquisition, divestiture or other capital event has its own rationale. A company pursues deals to fulfill its own specific Capital Agenda. That was true before tax reform, and it will remain true no matter where interest rates, steel tariffs or election results lead us in the second half of this already eventful year.
EY Americas Vice Chair
Transaction Advisory Services
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Download US highlights (PDF) Press release: Positive outlook on M&A market nearly triples from six months ago; talent demands and divestiture plans key motivators for dealmaking