In spite of an increasingly complex geopolitical environment, global M & A appetite for the past 10 years, according to the 20th edition of the Global Capital Confidence Barometer (CCB) report, biannually deployed in over 2,900 executives from 47 countries. Companies continue to use acquisitions to build the foundation for strong future growth amid a growing uncertainty. Nearly six out of ten companies worldwide (59%) are now planning to make a purchase next year, up from 52% to 12 months ago.
Also, executives expect their counterparts to be active at the negotiating table, with 92% of respondents predicting the global M & A market will grow next year, up from 86% in April 2018.
M & A's intentions are supported by greater trust among corporations. In contrast to the opinion of many economists who predict a slower growth, and despite geopolitical uncertainties, CEOs around the world are more optimistic about macroeconomic outlook. An overwhelming majority of respondents (93%) believe the global economy is improving, marking a 20% increase in positive expectations versus 73% a year ago. This ambitious outlook among executives is reflected by optimistic estimates of their future performance: 76% of respondents expect revenue growth between 6% and 15% over the next year.
Although it focuses on transactions and growth, executives do not lose sight of the risks. One third of them (33%) believe that the main reason for concern is a potential slowdown in economic growth, although this is not expected to happen. A similar number of executives (27%) believe that geopolitical, commercial and regulatory uncertainties represent the greatest external risks for the development of their companies.
"Romania continues to be attractive to foreign investors as a result of increasing consumer spending and purchasing power. The sectors of interest are both traditional ones, such as oil and gas or energy, and technology ones, which records an increased effervescence, " says Florin Vasilica, Head of Assistance in Transactions, EY Romania.
Remodeling portfolios to reinvent the future
As the pace of innovation and change is accelerating, the frequency of portfolios is growing. More than one third of companies (41%) are reviewing their portfolios every three months, compared with less than 10% of them a year ago. Frequent portfolio reviews enable companies to identify investment and acquisition areas more easily and quickly, decide on the assets to be ceded and improve their capital allocation strategies. And the pressures of activist shareholders trigger more frequent portfolio evaluations. These portfolio remodeling pressures are targeted to reconfigure operations or geographic footprint (35% of respondents) and asset disposal (28%). Also, these pressures focus on purchasing over one-third of respondents (37%).
The UK is ranked first among investment destinations, and China is heading for the US market
Despite the persistence of uncertainties about its intention to leave the European Union (EU), the United Kingdom is ranked first among investment destinations for the first time in the ten-year history of the study, after in October 2016 it was on the seventh position. It overtakes the United States of America (USA), which has held its first place since 2014. The United Kingdom is followed by the United States, Germany, China, France, Canada, India, Australia, Brazil and the United Arab Emirates. Although the top UK position may be a surprise for some, given the current uncertainties, M & A's activity has remained strong throughout the post-2016 referendum for EU exit. In 2018, 10 percent of global M & A transactions, totaling $ 400 billion, took place in the United Kingdom, representing the second best year after the financial crisis, with domestic transactions driven by robust inputs and outputs capital.
Another surprising change in the top is China's return among the top five investment destinations, although concerns remain about market access and reciprocity with the US and the EU.
And, despite protectionist issues, the US is a major investment destination for nine out of ten most active cross-border investors, including China.
All roads lead to transactions
Chief executives expect their transaction strategies to face fierce competition, 90% of them expect an increase in hostile and competitive bids in the coming year. At the same time, 88% of them expect more competition for assets from private equity funds, and 80% for more megatranzactions (worth at least 10 billion dollars).