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The mergers and acquisitions (M&A) market is primed for further growth as 56% of global companies intend to acquire in the next 12 months, according to EY’s 12th Global Capital Confidence Barometer.
This is the highest appetite to acquire recorded by the survey in five years, according to the biannual survey of more than 1,600 executives in 54 countries.
The Barometer finds an already buoyant deal market set to achieve new heights. With global deal value already up 13% on 2014, the M&A resurgence looks firmly entrenched as almost half of companies (47%) intend to complete more deals in the next year than in the past 12 months.
The number of deals in current pipeline – up 19% on 12 months ago – further underlines dealmaking intentions. The survey also found that companies with the largest pipelines are those aiming to further increase the number of targets in the next year.
Notably, 78% of companies have changed their M&A strategy as a result of increased deal activity in 2014. This suggests high-profile megadeal activity has triggered activity across the whole deal landscape. Virtually all respondents (98%) expect the deal market to improve or remain at current robust levels in the next 12 months.
“The appetite for deals is at a five-year high,” said Pip McCrostie, EY’s Global Vice Chair, Transaction Advisory Services, adding that the Barometer reveals three reasons for the sharp increase in dealmaking intentions.
“First, economic divergence fueled by commodity and currency fluctuations is accelerating cross-border M&A. Second, disruptive innovation is driving inorganic growth strategies at every level of enterprise. Finally, we will see the impact of new entrants and companies returning to the deal market after a hiatus.”
CONFIDENCE SOARS
Confidence in the global economy is soaring, with 83% of executives feeling optimistic, up from 53% just six months ago. This is providing strong foundations for deal intentions – as is continued high confidence in corporate earnings (72% – up from 65% 12 months ago).
In addition, deal fundamentals are conducive to activity. The “valuation gap” remains stable with 78% of respondents foreseeing no change in the next 12 months. Almost three-quarters (73%) are confident in the availability of credit.
However, 37% of companies view increased global and regional political instability as the biggest risk to their business. In addition, recent uncertainty associated with volatility in commodities and currencies is cited by more than a third (35%) as another significant risk. Yet, while some consider that a growth risk, others see it as an M&A opportunity.
“The low price of oil and currency fluctuations are viewed as a challenge, further elevating the need for cost reduction in the short term for many businesses. But this volatility is also driving M&A momentum through increased consolidation and executives searching for growth outside their domestic market,” McCrostie said.
The EY Barometer found that cross-border deals look set to be the hallmark of the new wave of deals with 84% of executives targeting investment opportunities beyond their own borders. Over half of executives (54%) are focusing M&A strategies on cross-border deals in their immediate region. Nearly a third (30%) are focused outside their immediate region. Only 16% plan deals in their domestic market.
Companies plan to invest most of their acquisition capital in developed markets for near-term growth. Interest in the emerging markets is expected to remain muted in the short term, with 65% of executives planning to allocate less than 10% of acquisition capital to developing regions.
According to the Barometer, the UK, China, the US, Germany and Australia are the top five destinations of choice for investors. In terms of buyers, the US, South Korea, UK, France, Germany and Japan will be the most prominent acquirers.
Almost three quarters (73%) of those planning to do deals are looking at innovative investments – sectors with the highest level of acquisitive intent are technology, automotive, consumer products, diversified industrials and financial services.
View the report online at http://www.ey.com/ccb .
