A quest for growth and innovation among large corporates is overriding geopolitical uncertainty to drive a near-record appetite for M&A deals, says EY – with 56% of companies planning to acquire in the next 12 months.
According to the auditor’s latest Global Capital Confidence Barometer, technology-enabled disruption poses a far greater challenge to business models than the unsettled political climate.
The exponential pace of that transformation is compelling executives to engage in M&A specifically to stay ahead of the curve.
In its survey of more than 2,300 executives in 43 countries, the Barometer found that an overwhelming 96% of executives expect the M&A market to improve or remain stable in the coming year.
Meanwhile, 36% of companies expect that, over that time, their deal pipelines will continue to expand.
EY global vice chair, transaction advisory services, Steve Krouskos said: “Geopolitical issues may dominate the headlines, but boards are laser focused on countermeasures against technological disruption and seizing new routes to growth. Those countermeasures will often involve M&A.”
However, while technology and digital disruption are major drivers of the current market, other considerations are spurring deal activity, too.
“Geographical expansion to secure supply chains and increase customer reach will accelerate cross-border M&A,” Krouskos pointed out. “Private equity is returning to replenishing mode.
“Lastly, corporates are increasingly reassessing and reshaping their portfolios, creating a natural pipeline of deal opportunities.”
The reduced concern over political volatility has been particularly helpful to the UK. After dropping out of the Top Five busiest M&A locations in October, following the EU referendum, the nation has now returned to that elite ranking at number three – with China at two and Germany at four.
Krouskos noted: “Signs of an economic upturn are boosting renewed expectations for growth and further fuelling deal intentions. At the same time, investor expectations have also increased.
“The net result is executives recognise that staying on the deal sidelines could mean they are sidelined from securing future-proofing assets.”
Amid the deal quantity, deal quality is also at the forefront of executives’ minds. “Sceptics may maintain that heightened levels of deal activity lead to too many bad deals being pursued,” Krouskos added. “However, this is not the case in today’s M&A market.
“Companies are using advanced analytics, combined with data-driven diligence and integration, to target the right deals and integrate them in the right way.”