Company executives’ confidence in the stability of the global economy has improved, and appetite for mergers and acquisitions has increased, a survey by consultancy EY shows.
It also shows a jump in their confidence in the outlook for company earnings, just as earnings season kicks off in the U.S.
The survey was carried out in August and September among more than 1,600 company executives in 62 countries, with more than half of the sample being CEOs, CFOs or other C-level executives.
The companies in the survey came from 18 sectors. Their revenues ranged from $500 million to more than $5 billion.
The number of executives confident in global earnings reached 77% from April’s 65%.
In the first half of this year, 70% of companies in the S&P 500 index beat estimates. In the UK and the eurozone, results were affected by currency and regional concerns.
This has led to improved hiring confidence, with more than half of the companies surveyed expecting to create jobs or hire people, compared with just 31% in April.
The number of firms saying they intend to cut their workforce fell to 7% from April’s 17%.
The appetite for mergers and acquisitions reached a three-year high. Of the executives surveyed, 40% said they expected to pursue acquisitions in the next 12 years (just under half of those surveyed said they were confident about the likelihood of closing deals).
But while this year has been “notable for high-profile mega-deals,” next year will be dominated by middle-market M&A, the experts from EY said.
Of the executives surveyed, almost two thirds expect deal volumes to increase further over the next 12 months. The number of respondents expecting a decline is “negligible.”
Unlike in the recent years, when the focus was on US-based assets, a rise in mergers and acquisitions is expected across all geographies in the year ahead.
Most companies are focused on buying firms in their core sectors in order to boost market share, cut costs and improve profit margin growth, the survey showed.
More than 80% of those surveyed are looking to do deals valued at $1 billion and under. The not so good news is that most executives who are looking to do M&A are looking to acquire companies that complement their current business model, in order to cut costs.
Half of respondents said that shareholder activists have raised the issue of cost-cutting on the board’s agenda.
Almost two thirds of executives surveyed expect M&A pipelines to expand further over the next year — more than double compared with April’s figure.
The main destinations for M&A investment in the developed world are the US and the UK. Among emerging markets China, India and Brazil are very attractive.
The main risks the company executives see for the economic outlook are increased global political instability and the effects of the tapering of the Federal Reserve’s quantitative easing policy.