Confidence in the economy surges, M&A appetite jumps

Confidence in the economy surged, with 83% of global executives in a recent survey saying they felt optimistic, compared with 53% half a year ago.

Confidence in the Economy

Confidence in the global economy is surging. Source: EY survey

This, as well as high confidence in corporate earnings, has pushed appetite for mergers and acquisitions higher, with more than half of the companies in the world looking to acquire other companies in the next year.

It is the highest appetite for M&A in the past five years, EY’s “Global Capital Confidence Barometer,” a biannual survey of more than 1,600 executives, showed.

A “striking” 56% of global firms intend to carry out acquisitions over the next 12 months, while 98% of respondents (virtually all of them) said they expected the deal market to improve or at least stay at the current levels in the next 12 months.

Global deal value rose by 13% last year; the number of deals in the pipeline is up 19% from 12 months ago.

There are three reasons for the sharp increase in M&A intentions, according to Pip McCrosite, global vice chair of transaction advisory services at EY.

“First, economic divergence fuelled 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,” she said in a statement.

The smaller deals, worth up to $250 million, dominate executives’ plans, with 77% saying this is the kind of capital they plan to allocate to acquisitions over the next 12 months. Next is the $251 million — $1 billion category, with 21% of executives’ choices, while the rest is mega-deals over $1 billion.

Hottest M&A Sectors

M&A fever is high in many sectors, but technology is the hottest, with 67% of respondents from that sector saying they intend to actively pursue acquisitions in the next 12 months.

Technology is followed by automotive, with 59%, consumer products and retail, with 58%, diversified industrials, with 53%, and financial services with 49%.

Compared to a previous survey in October last year, executives’ confidence in short-term market stability and in credit availability increased.

However, confidence in corporate earnings and in the outlook for stock markets decreased by a few percentage points.

Hiring intentions fell sharply, with 29% of respondents saying they intend to add to their workforce compared with 52% in October.

On the other hand, the number of executives seeking to reduce their workforce shrank to just 6% from 7% in October, while an overwhelming percentage – 65% — said they wanted to maintain their workforce at current levels.

As for risks facing their business, they identified increased political and regional instability, followed by increased volatility in commodities and currencies, as the top two.

Other risks identified by the respondents were the eurozone’s economic situation, the regulatory environment, slowing growth in key emerging markets and deflation.

The survey was carried out in February and March among more than 1,600 respondents in 54 countries. More than 850 of the respondents were C-suite executives such as CEOs or CFOs.

Most of the companies (67%) were listed, while the rest were privately owned (28%), family owned (3%) or owned by the state (2%).

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