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).
"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.
"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."