Business leaders continue to target M&A opportunities amid global uncertainty
- M&A drumbeat continues as more than half of global companies plan to acquire in the next 12 months
- Strong M&A intentions fueled by search for talent and tech – most companies plan significant capital investment in both
- US and UK top M&A destinations; most executives discount likelihood of near-term recession
LONDON, KYIV 19 December 2019. Business leaders are continuing to reshape their company portfolios despite a challenging geopolitical environment, with 52% of global corporates planning to pursue acquisitions in the next year, according to the 21st EY Global Capital Confidence Barometer (CCB).
The search for technology and talent is driving deals: two-thirds (66%) of respondents plan to allocate more than 25% of their total investment capital to technology, mostly solutions that drive top-line growth. More than half of executives (56%) will invest in technology through acquisition, joint ventures or external venture funds. At the same time, almost two-thirds of respondents (61%) are experiencing difficulties securing the right skills and talent. That number is even higher in the UK (66%) and Germany (72%).
Steve Krouskos, EY Global Vice Chair – Transaction Advisory Services, says: “In terms of investing in technology, the answer to the buy-versus-build question for most companies is tilting toward buy. At the same time, the shortage of talent is a constraint on growth and acquiring the skills needed to underpin future growth is increasingly part of the current M&A story.”
No economic downturn in sight for many executives
The likelihood of a recession in the near- to mid-term is not considered a significant threat: most respondents (54%) are not expecting an economic downturn. While the majority of respondents from most major economies remain confident in their economic outlook, this is deeply contrasted in Germany where 80% expect a downturn and the UK in which 62% expect a downturn. Despite these concerns, the deal market in Germany and the UK has remained active in 2019. Executives in the US are the most bullish with 78% of respondents discounting the chance of significant economic downturn in the near- to mid-term.
Companies are managing through trade and tariff issues that could be perceived as undermining economic confidence. Almost two-thirds of businesses (64%) are actively planning to mitigate the impact of trade and tariff issues in ways such as reconfiguring supply chains and relocating production facilities. A further 22% are actively considering their options to respond to this fast-changing situation.
Variety in competitive and hostile deal making expected
In the context of this bullish economic outlook, the deal market going into 2020 looks set to be highly competitive. Eight in ten respondents expect to see an increase in hostile and competitive bidding in the next year and 75% of respondents expect private equity to be a major acquirer.
Respondents expect increased megadeal activity ($10bn+), with more than half (55%) foreseeing an increase in deals topping the US$10b+ mark. Almost three-quarters (72%) do not anticipate any slowdown in M&A activity overall and a similar number (71%) of corporate executives forecast an increase in cross-border deal making.
US regains top spot; UK remains attractive to investors
The latest CCB finds the US is the preferred place for M&A investment globally. While Brexit uncertainty continues, the survey finds UK attractiveness strong as investors rank it the second preferred investment destination globally. The US and UK outpace Germany (in third), China (fourth) and Canada (fifth).
Krouskos adds: “The ongoing trade issues in a number of the major economies have not caused dealmakers to shelve plans. The imperative to transform outweighs the risk of uncertainty. As long as this continues, the drumbeat for M&A will go on. Deals continue to be powerful means to reshape portfolios and accelerate the transformation imperative facing CEOs.”
Articulating purpose and long-term value creation
Purpose and social impact are rising on the boardroom agendas and are fundamentally reshaping the way companies measure success. Some 84% of companies already have, or plan to have, social value reporting metrics in place for the next year.
Krouskos says: “Business leaders are increasingly paying closer attention to investors’ demands to see evidence of broader responsibilities. They are recognizing and responding to the need to be good corporate citizens, knowing that any business on the wrong side of this debate will likely find themselves on the wrong side of history.”
Bogdan Yarmolenko, Transaction Advisory Services Leader for Ukraine, comments: “I would like to emphasize the foreword to GCCB survey by our global Vice Chair, Steve Krouskos: in today’s environment the only certainty in uncertainty.
The global survey induces to abandon, at least for a while, our inward-focused intrinsic mindset and try to think globally. Definitely there are risks mentioned by global respondents that, in my view, are equally applicable to Ukraine, however these risks may not necessarily be visible in Ukraine at the moment.
31% of global respondents stated that greatest external risks to their business is Geopolitical, trade and tariff uncertainty. But more interestingly, the risk ranked #2 and supported by 22% of respondents is the Increasing competition from startups and technology.
More than a half of global respondents are allocating 25%-50% of their investments to digital transformation. 66% of investments into digital future are allocated to external M&A targets. I am pretty sure Ukrainian businesses’ investment priorities are currently different. At the same time, we are a part of the global economic landscape whereas Ukrainian businesses are facing global competition. All of us remember prominent brands like Kodak or Nokia, that no longer exist because of technological disruption – this is a lesson to learn. There are similar examples in the Ukrainian history. Just think about…
On a separate but related note: 52% of respondents in the global survey say that their companies will actively pursue M&A in the next 12 months. From my experience, Ukraine is not necessarily on their radar. The obvious task of Ukrainian government and businessmen is to join the efforts to get there.
It happens that Ukrainian businessmen are not sufficiently represented in EY Global survey, we in Ukraine will launch the local Business Sentiment survey soon to have more precise results for Ukrainian market and make them available to the public.”
Notes to editors
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About EY Global Capital Confidence Barometer
The Global Capital Confidence Barometer gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agendas — EY framework for strategically managing capital. It is a regular survey of senior executives from large companies around the world, conducted by Thought Leadership Consulting, a Euromoney Institutional Investor company. The panel comprises select global EY clients and contacts and regular Thought Leadership Consulting contributors.
- In August and September, Thought Leadership Consulting on behalf of EY surveyed a panel of more than 2,900 executives in 45 countries; 70% were CEOs, CFOs and other C-level executives.
- Respondents represented 14 sectors, including financial services, consumer products and retail, technology, life sciences, automotive and transportation, oil and gas, power and utilities, mining and metals, advanced manufacturing, and real estate, hospitality and construction.
- Surveyed companies’ annual global revenues were as follows: less than US$500m (25%); US$500m–US$999.9m (25%); US$1b–US$2.9b (18%); US$3b–US$4.9b (10%); and greater than US$5b (22%).
- Global company ownership was as follows: publicly listed (57%), privately owned (31%), family owned (9%) and private equity portfolio company (3%).
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