Global M&A appetite dips to four-year low amid rising geopolitical uncertainty

  • 46% of global executives plan to acquire in the next 12 months – lowest appetite in four years
  • Some executives opt to pause M&A due to regulatory, trade and tariff uncertainty such as Brexit –  but UK is number two investment destination of choice
  • Longer-term deal market outlook robust; new sources of private capital fueling competition

LONDON, KYIV, 11 February 2019. Despite 2018 being on track to become a near-record year for the number of global mergers and acquisitions (M&A), corporate acquisition appetite is at a four-year low. Deal plans are subdued in part due to increasing geopolitical concerns, according to the 19th EY Global Capital Confidence Barometer (CCB), a biannual survey of more than 2,600 executives across 45 countries. With rising regulatory uncertainty, and ongoing trade and tariff negotiations – including Brexit talks and the US-China trade disputes – weighing-in on M&A sentiment, 46% of respondents cite regulation and political uncertainty as the biggest potential risk to dealmaking in the next 12 months. Only 46% are now planning to acquire in the next 12 months – down from 56% a year ago.

However, M&A imperatives and macroeconomic fundamentals remain robust, with 90% of respondents expecting the global M&A market to improve and 9% expecting it to remain stable in the next 12 months. The majority of executives (85%) believe global economic growth prospects are improving, with only 2% predicting short-term market stability to decline and 2% predicting equity valuations to deteriorate.

Vladyslav Ostapenko, Head of Corporate Finance and M&A at EY in Ukraine: “This year is likely to become the only one in the past five when it is easy to say that Ukraine has lost nothing in the capital markets due to the situation in the country. The period of presidential and parliamentary elections usually drives low activity of foreign investors who prefer to see who takes the office, what the candidate’s political priorities are and what might be expected from the allocation of forces in the Parliament. However, the latest study shows that one should not expect significant foreign investment activity since foreigners are now focusing more on responding to their own challenges.

Our current projects showcase that foreign investment agreements are not canceled – they are most likely to be situational in nature and related to the objects of interest. The main players will be local investors who remain active this year”.

After a sustained period of elevated M&A activity across the CESA region (Central and South Eastern Europe and Central Asia) over the last several years, CESA countries appear to be taking a breath amid ongoing regulatory and geopolitical uncertainty. Down from the year before when deal intentions hovered above 50%, but similar to our survey results six months ago, 38% of CESA executives say that they expect to pursue M&A in the next 12 months.

Current macroeconomic conditions create a positive atmosphere for future deal making in the CESA region. Executives across all CESA countries see an upside in the global economy, with 85% of respondents seeing the M&A market improving in the coming year (vs. 47% in October 2017).  Locally, although economic sentiment has not reached the levels of the global outlook, two-thirds of CESA executives see economic conditions improving. As such, even as uncertainties prevail, CESA companies appear poised to adjust their portfolios and search for acquisitions that allow them to grow their businesses to compete in an increasingly complex environment.

But companies are still tending to pause in the near term — while they review their portfolios and fill their pipelines. Three-quarters of CESA executives are reviewing their portfolios every six months or more. These reviews help them to understand the potential for policy changes that may disrupt their businesses and improve their agility to respond to changing conditions. As a result of their most recent portfolio review, 69% of CESA companies have identified assets to divest, either because they are underperforming (41%) or because they are at risk of disruption (27%).

CESA companies forging ahead with M&A activity in 2019 rather than pressing pause expect protectionism and other trade policies to hamper cross-border dealmaking, even as one-fifth of respondents say they are focusing on cross-border opportunities to mitigate the potential impact to their operations. CESA executives also anticipate an increase in cross-sector M&A to address digital disruption. These trends, combined with increasing pressure from private equity, venture capital and other funds, will likely increase competition for assets in the next 12 months.

Steve Krouskos, EY Global Vice Chair – Transaction Advisory Services, says: “Geopolitical, trade and tariff uncertainties have finally caused some dealmakers to hit the pause button. Despite stronger-than-anticipated first-half earnings and the undeniable strategic imperative for deals, we can expect this year to finish with much weaker M&A than how it started. The good news is that companies will likely take the break in action as an opportunity to focus on integrating the many deals undertaken over the past 12 months. This is likely to be just a pause, not a complete stop. Fundamentals and the strategic rationale for deals remain strong, and the appetite to acquire will likely grow toward the second half of 2019.”

Brexit negotiations top of mind for executives

The outcome of Brexit negotiations is a focus for all executives surveyed. Forty-one percent say that an Economic Free Trade Agreement similar to Switzerland’s is their preferred outcome of UK-European Union (EU) discussions, followed by 22% preferring Canada’s Free-Trade Agreement model. Just 5% of executives globally prefer a second referendum of the UK’s EU membership – and only slightly more (6%) favor a World Trade Organization rules-based outcome.

The CCB also highlights the impact of Brexit in relation to financial services. Forty-three percent of all respondents state they would be less likely to buy financial products and services from London-based providers when the UK leaves the EU.

Despite ongoing global trade and tariff uncertainty, many companies are still planning cross-border deals to mitigate the potential impact, with 20% of executives focusing more on international opportunities, including within the UK, which is the number two destination of M&A choice for executives globally, up from the fifth position in the April 2018 survey. Overall, the top five investment destinations for executives surveyed are the US, the UK, Canada, Germany and France.

Krouskos says: “Many companies are looking to M&A to mitigate the potential impact of trade and tariff policies, secure market access and protect supply chains. All of the top M&A destinations of choice are countries embroiled in trade uncertainties, suggesting that those companies planning deals are actively looking to get ahead of potential geopolitical disruption.”

Portfolio optimization comes to the fore in response to uncertainties

The increasing risk of technological disruption, geopolitical uncertainties and ever-changing consumer preferences are prompting executives to review their portfolios more frequently. An increasing number of executives (40%) are reviewing their portfolios every six months compared with a half a year ago (27%). Companies from Japan (62%) and China (61%) cite this frequency more than other countries’ respondents. Just 33% of companies review their portfolios once a year or less, compared with 64% six months ago, with most of those respondents based in the US (58%) and the UK (43%).

Private equity dealmaking intentions not so private

As a result of portfolio reviews, nearly three-quarters of companies (73%) have identified assets to divest – due to underperformance or risk of disruption – indicating that other assets are coming to market and future buy-sell churn.

Some divestments could attract private equity (PE) buyers, with 31% of executives citing PE as a major acquirer in the next year. Sixty-eight percent believe that the biggest competition they face for assets will come from private capital, including PE and corporate investment funds.

Krouskos says: “The rise of private capital, including private equity, super funds, sovereign wealth funds and corporate venture capital, has fundamentally reshaped the funding environment and will help refresh M&A activity in the future. Fund managers are allocating more to private capital than ever before in the history of modern capital markets. Many will use private equity as a vehicle to deliver returns, while others will increase direct investing activity.

“Uncertainty is giving some executives pause for M&A thought – and that will likely result in a fall from current deal highs in the next 12 months. However, we can expect higher M&A activity into next year. Portfolio reviews today will yield asset sales in due course. Getting ahead of technological disruption and navigating geopolitical shifts will require M&A. And with growing competition for assets among private equity and other private capital, those corporate executives who are opting to wait on the sidelines will likely find they are compelled to return to the deal table in 12–18 months’ time.”


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EY Global Capital Confidence Barometer is a biannual survey compiled by Euromoney Institutional Investor Thought Leadership of more than 2,600 senior executives from large companies around the world and across industry sectors. This is the 19th biannual CCB in the series, which began in November 2009; respondents for the 19th edition were surveyed in August and September 2018. 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, diversified industrial products, and construction and real estate. The objective of the Global Capital Confidence Barometer is to gauge corporate confidence in the global and domestic economic outlook, to understand boardroom priorities in the next 12 months and to identify emerging capital practices that will distinguish those companies building competitive advantage as the global economy continues to evolve. #EYCCB