But fund managers are allocating more to private equity
The appetite for mergers and acquisitions has fallen to its lowest in 4 years according to a new global survey.
Ernst & Young (EY) has polled more than 2,600 senior executives from large companies around the world and across industry sectors for its Confidence Barometer.
It found that 46% of respondents say they plan to acquire in the next 12 months, down from 56% a year ago.
Geopolitical, trade and tariff uncertainties have finally caused some dealmakers to hit the pause button, despite some positives.
“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,” says Steve Krouskos, EY Global Vice Chair – Transaction Advisory Services.
However, the break from deals could mean that companies will focus on integration of the deals they’ve done in the past 12 months. And Krouskos sees a bounceback in deal activity ahead.
“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,” he says.
Other survey findings
Rising regulatory uncertainty, and ongoing trade and tariff negotiations — including Brexit talks and the US-China trade disputes — are dampening M&A sentiment, but 90% of respondents expect the global M&A market to improve and 9% expecting it to remain stable in the next 12 months.
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%).
This increased focus on portfolio reviews means that 73% of companies have identified assets to divest due to underperformance or risk of disruption.
Some of these divestments could attract private equity 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.
“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,” Krouskos says. “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.”
