M&A on the rise despite geopolitical uncertainties

Ongoing geopolitical uncertainty appears not to have dented deal appetite among executives. Global M&A activity continues to gain strength following increased dealmaking in the first quarter of 2017, according to the EY 16th Global Capital Confidence Barometer (CCB). 

Based on a survey of more than 2,300 executives across 43 countries, the Barometer finds that even amid rapidly changing market conditions, 56% of companies expect to actively pursue deals in the next 12 months – up six percentage points from a year ago.

At a time of already elevated dealmaking, 36% of companies expect their deal pipelines to expand further in the next year. The vast majority (96%) of executives expect the M&A market to improve or remain stable over the same period.

This strong appetite for deals persists against a backdrop of geopolitical or emerging policy concerns, which are seen as the greatest risk to economic growth for 69% of businesses. Yet according to the survey, the disruptive impact of technology on potential deal outcomes and business models remains at the forefront of the minds of the majority of executives.

Innovation needed

“Geopolitical and policy uncertainty is a permanent feature of the boardroom, but technology-enabled disruption poses a greater challenge to many business models. The exponential pace of disruption and transformation is compelling executives to engage in M&A. Companies need to innovate to follow rapidly changing customer preferences and buying assets can be the fastest way to radically reshape their business for future growth,” commented Steve Krouskos, EY global vice chair, transaction advisory services.

Uncertainty about policy and the potential of increasing intervention by governments – through new policies and regulations – are on the list of executive concerns. But dealmaking is supported by positive corporate indicators and a resurgence of economic confidence: 64% of executives see the state of the global economy as improving (up from 21% in October 2016).

Fears of increasing protectionism in 2016 have morphed into uncertainty about policy that could affect global trade. However, despite trade barrier speculation, crossborder M&A has already been a hallmark of dealmaking in 2017, with a resurgence of deals between the US and Western Europe. For companies expecting to do acquisitions, 36% plan to focus on domestic deals in the next 12 months as the search for growth continues overseas. Companies are looking everywhere for pockets of growth, although the main focus has shifted back to developed markets, the Barometer finds.