Confidence in capital market remains robust and the prolonged upward trend for dealmaking is set to continue
—— EY released the 21^st edition of Global Capital Confidence Barometer

EY released its 21st edition of Global Capital Confidence Barometer (CCB) today, indicating that among Chinese respondents, action outweighs uncertainty in the C-suite and the majority remain optimistic in the near-term economic outlook; M&A intentions remain strong and the C-suite predicts the prolonged dealmaking upward trend will continue – specifically, 56% of Chinese respondents expect global M&A market to improve over the next 12 months; respondents generally have positive attitudes towards digital transformation and show strong confidence in innovation culture within their organizations.

CCB gauges corporate confidence in the economic outlook, identifies boardroom trends and practices in the way companies manage their Capital Agendas and examines how companies can future-proof their business. Respondent community includes more than 2,900 senior executives surveyed in August and September 2019. They represented 14 industries in 45 countries including 176 from China and 1,513 CEO, CFO and other C-level executives.

On a macro level, CCB reveals that global economic activity has slowed in some of the major economies in 2019, but most major economies are still growing. Alex Zhu, China North Transaction Advisory Services Leader, EY, said, “Challenges arise from tariff and trade concerns and uncertainties over geopolitics and national politics. These risks are putting downside pressures on export-oriented countries. However, 70% of Chinese respondents do not expect an economic slow-down in the short and medium term. While there has been more speculation about the potential of a global correction, executives do not see this on the immediate horizon and a majority does not expect a severe downturn. Companies should be taking advantage of today’s market conditions to reassess their portfolio vulnerabilities and divest assets that are not part of their future growth strategy.”

According to CCB, market shocks and reversals in the short run can be unpredictable and happen at any moment, while most Chinese respondents are positive in their outlook for the next 12 months and their confidence in capital market remain robust. Alex added, “Globally, companies have an opportunity to utilize the current environment of ultra-low, even negative, interest rates to optimize their capital structure to safeguard against potential threats.”

Digital and its transformation have created positive impacts on the future of companies. Meanwhile, Chinese respondents are aware that technology is both an enabler and a threat. Jieqi Zhou, Partner, EY Parthenon Transaction Advisory Services, said, “Barriers to entry are changing across many industries. Companies need to understand the ecosystem of their industry landscape in order to determine their best route forward.”

Unlike global respondents, Chinese respondents are more passionate about delivering innovative products and services, and their digital capabilities are more likely to be centralized under a Chief Digital Officer or a Chief Technology Officer (67%). Digital environment in China has its own attributes, Jieqi explained, “China goes far ahead of the rest of the world in customer-oriented digital environment, with huge amount of user data accumulated, and lags behind leading economies in business-oriented digital environment such as manufacturing and supply chain; securing the right talents can help transform such huge amount of data into a driving force or a source of innovation and deliver digital transformation.” As such, Chinese companies are more keen to find the right talents (27%).

According to CCB, increased competition from existing competitors is the most significant challenge when Chinese respondents look at their own immediate growth plans. Meanwhile, 57% of Chinese respondents have difficulties in hiring and retaining talents and a shortage of the talent and skills required is the common issue faced by Chinese companies.

Although Chinese companies face challenges when making overseas investment, according to CCB, 56% of Chinese respondents expect global M&A market to improve over the next 12 months and 46% of Chinese executives expect to actively pursue M&A deals in the next 12 months. Sarah Chang, Partner, EY Transaction Advisory Services, said, “Despite geopolitical fears or the shadow of an economic slowdown, companies are actively looking to M&A to navigate current and potential barriers to growth. Indeed, dealmaking is often the fastest route that companies proactively respond to evolving challenges.”

Moreover, CCB indicates that as companies evaluate a variety of deals to reinvent business models in response to the changing technological and competitive landscape, compared to the past 12 months, around 48% of Chinese respondents expect an increasing company pipelines, while around 59% of Chinese respondents expect a rise in the number of deal completion over the next 12 months.

Most companies favor bolt-on acquisitions (66%) to complement existing business and transitional capabilities acquisitions (23%) that change the way companies operate, digitize and expand new ways to serve customers, to transform existing businesses. In terms of industry, life science (85%), media and entertainment (75%) and technology (54%) rank the top three among M&A activities to be pursued over the next 12 months. Sarah Chang added, “Finding the right talent and technology quickly is becoming a driver of M&A deals, while long-term value beyond traditional finance is becoming a KPI for executives.”

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This press release is issued by the EY China practice, a part of the Ernst & Young global network.

(From Left) Sarah Chang, EY Transaction Advisory Services Partner, Alex Zhu, EY China North Transaction Advisory Services Leader, Jieqi Zhou, EY Transaction Advisory Services Partner

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