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16th Global Capital Confidence Barometer

  1. Can complex geopolitical uncertainty and record M&A coexist? Despite policy uncertainties, companies are giving the greenlight to deals in the search for growth. Global Capital Confidence Barometer April 2017 | 16th edition |
  2. Dealmaking continues at pace with fundamentals driving activity At a time of rapid disruption, political change and policy uncertainty… … companies are proactively managing their portfolios and protecting their core business… … but a resurgence of economic confidence and positive corporate indicators… … also finds executives primed for record dealmaking as they search for above-trend growth. Participant profile ► Respondent community includes more than 2,300 senior executives surveyed in March and April 2017 ► Companies from 43 countries ► Respondents from 14 industries ► 1,168 CEO, CFO and other C-level executives
  3. Global key findings Top 10 actions that help define success in today’s deal economy Learn to live with uncertainty 1 Follow the customer 6 Constraints are the ones you create 2 Disregard boundaries 7 Reimagine the parameters of your business 3 Walk through walls 8 Play on your terms4 Measure what matters most 9 Your pipeline is your lifeline5 Do integration back to front Geopolitical and policy uncertainty is a feature of a globalized economy, but technology-enabled disruption poses a challenge to many business models. M&A can offer a fast track to the innovation needed to maintain pace with the warp-speed customer-centric change reshaping today’s business landscape. New products and services are being created at a pace not seen before — being bold could be key to success as today’s deals will likely be tomorrow’s game changers. Cross-border deals are a necessity — successful companies will find ways to navigate challenges such as rising nationalism. Do what you do best — adapt your operating model to succeed in tomorrow’s market. The traditional walls that once defined sector territories have dissolved — executives need to seize opportunities amid shifting industry models. Be in total control of your own destiny — rigorous and regular portfolio reviews will enable you to be strategically nimble and opportunistic. Past performance is not necessarily an indicator of future success — new ways of focusing and filtering data can provide insights into future customer trends. Competition for quality assets is high, and ensuring you are assessing a number of M&A options is critical to create multiple opportunities in such a fast-moving market. Always consider your overarching strategy during integration, and enhance potential value by targeting both top-line customer experience and bottom-line cost efficiencies. 10
  4. Global key findings M&A outlook Dealmaking is set for a strong 2017. Concerns about an overheated market are countered by growing deal discipline. expect to actively pursue acquisitions in the next 12 months. 56% 90% 64% expect their pipeline to increase or remain stable in the next 12 months. look at cross-border deals to secure market access and grow their customer base.
  5. Global key findings Macroeconomic environment Confidence high as executives anticipate the global economy improving and corporate earnings on an upward track. see the global economy improving. 64% 97% 69% expect corporate earnings to either improve or remain stable. cite a broad range of geopolitical or emerging policy concerns as greatest risks to growth. A resurgence of economic confidence is fueling growth plans… … and greater stability in capital markets is expected to foster investment… … while rapid disruption, political change and policy uncertainty remain.
  6. Global key findings Growth and portfolio strategy As technology disrupts business models and customer behaviors, businesses are more regularly reassessing and reinventing their portfolios. have increased the frequency of their portfolio review process. 73% 49% 50% plan to outsource routine operations or back-office functions in the next 12 months. cite digital innovation, the search for growth and sector convergence as most prominent topics on their boardroom agenda. Emerging pressures help to reinvigorate portfolio review processes… … and outsourcing backroom functions will help focus on core operations… … as companies look to counter disruption and accelerate growth.
  7. Global key findings North America the focus of cross-border deals Companies are looking across a broad range of geographies for deals to secure market access and grow their customer base, with a pivot toward developed markets. North America Latin America Western Europe Eastern Europe Africa and Middle East Asia- Pacific Outside domestic market Immediate region Domestic market (home country) Primary preferred destination outside their own region Respondents were polled on their top five investment destinations; this chart reflects the top preference for each region.
  8. Global key findings Top 5 investment destinations Companies are looking across a broad range of geographies for deals to secure market access and grow their customer base, with a pivot toward developed markets. United States 1 2 3 4 5 China United Kingdom Germany Canada The United States retains its position as the center of global M&A. Conditions are set for another strong year in US dealmaking, with growth acceleration anticipated, executives and consumers expressing confidence, and supportive capital markets. China is now well established as the second most important market of global M&A. While the focus of China-involved dealmaking in 2016 was outbound acquisitions, 2017 will be firmly centered on domestic combinations and inward investments. While the United Kingdom briefly fell out of the top 10 destinations for investment in the survey following the referendum on membership of the European Union, it has quickly rebounded as an investment destination in this Barometer.
  9. Global key findings Top sectors and key M&A drivers Automotive and transportation Consumer products and retail Mining and metals Oil and gas Power and utilities Telecommunications ► Collaborative product development, supply chain and production, based on predictive analytics, robotics and Internet of Things (IoT) technology, are driving innovation across the automotive value chain. ► Companies’ M&A strategies revolve around acquiring innovative capabilities offered by start-ups. ► Cross-border transactions are expected to increase as large regional companies look to move from being strong regional leaders to global competitors. ► Portfolio optimization will also be a major theme, with large European and North American conglomerates refining their portfolios to focus on core assets and category expansion. ► During the price downturn, the mining industry was selling non- core assets to reduce debt and optimize balance sheets. ► The recovery of commodity prices has released the immediate pressure on companies to sell, and some have postponed divestments. ► Portfolio optimization is expected to be at the forefront across the oil and gas value chain. Companies are making concerted efforts to improve their portfolios and move toward low-cost, high-productivity regions. ► This will drive deal activity, especially for the upstream operators. Companies will want to dispose of non-core assets and acquire acreage in core areas. ► Expansion in distributed generation, such as solar photovoltaic and battery storage, and new energy technologies, such as microgrids, and virtual power plants is disrupting traditional utility business models. ► Smart technology, telecommunications and analytics are being used to optimize energy delivery and enhance customer experiences. Utilities are acquiring new capability through acquisitions or partnering with telecommunications and technology providers. ► Increasing convergence and competition with technology and media companies, combined with advances in technology and digitalization, are disrupting business models across the telecom landscape, leading to increasing combinations. ► Telcos will grow their revenues in the digital landscape by capturing adjacent business options, including over-the-top, Internet of Things and machine-to-machine information.
  10. Global key findings Disruption drives the next wave of dealmaking Can heightened geopolitical uncertainties and buoyant M&A coexist? Yes. Why? Because geopolitical concerns, though a mainstay feature of the boardroom, are overshadowed by more immediate and pressing risks and opportunities. Geopolitical issues may dominate the headlines, but boards are laser-focused on countermeasures against technological disruption and seizing new routes to growth. Those countermeasures will often involve M&A. But, while technology and digital disruption are major drivers of the current market, other considerations are also spurring deal activity. Geographical expansion to secure supply chains and increase customer reach will accelerate cross-border M&A. Private equity is returning to replenishing mode. Lastly, corporates are increasingly reassessing and reshaping their portfolios, creating a natural pipeline of deal opportunities. Consequently, the M&A market is healthy. And we can expect further deal activity. As our front cover indicates, the search for growth is a green light for dealmakers. Skeptics may maintain that heightened levels of deal activity lead to too many bad deals being pursued. However, this is not the case in today’s M&A market. Companies are using advanced analytics, combined with data-driven diligence and integration, to target the right deals and integrate them in the right way. The result: A strong outlook for dealmaking prevails. Steve Krouskos EY Global Vice Chair, Transaction Advisory Services Follow Steve on: Twitter and Linkedin
  11. Contacts Global Steve Krouskos EY Global Vice Chair, Transaction Advisory Services EY Global Limited +44 20 7980 0346 Follow on: Twitter | Linkedin Julie Hood EY Deputy Global Vice Chair, Transaction Advisory Services EY Global Limited +44 20 7980 0327 Follow on: Twitter | Linkedin Barry Perkins EY Global Lead Analyst, Transaction Advisory Services EY Global Services +44 20 7951 4528 For a conversation about your capital strategy, please contact us. Americas William Casey EY Americas Leader, Transaction Advisory Services +1 212 773 0058 Asia-Pacific Harsha Basnayake EY Asia-Pacific Leader, Transaction Advisory Services +65 6309 6741 Europe, Middle East, India and Africa (EMEIA) Andrea Guerzoni EY EMEIA Leader, Transaction Advisory Services +39 028 066 93707 Japan Vince Smith EY Japan Leader Transaction Advisory Services +81 3 4582 6523
  12. EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit About EY’s Transaction Advisory Services How you manage your Capital Agenda today will define your competitive position tomorrow. We work with clients to create social and economic value by helping them make better, more-informed decisions about strategically managing capital and transactions in fast-changing markets. Whether you’re preserving, optimizing, raising or investing capital, EY’s Transaction Advisory Services combine a set of skills, insight and experience to deliver focused advice. We can help you drive competitive advantage and increased returns through improved decisions across all aspects of your Capital Agenda. © 2017 EYGM Limited. | All Rights Reserved. | EYG no. 01739-173GBL | ED 21/04/2018 This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. About the survey The Global Capital Confidence Barometer gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agendas — EY framework for strategically managing capital. It is a regular survey of senior executives from large companies around the world, conducted by Euromoney Institutional Investor Thought Leadership (EIITL). Our panel comprises select global EY clients and contacts and regular EIITL contributors. ► In March and April, we surveyed a panel of more than 2,300 ► Respondents represented 14 sectors, including financial services, consumer products and retail, technology, life sciences, automotive and transportation, oil and gas, power and utilities, mining and metals, diversified industrial products, and construction and real estate. ► Surveyed companies’ annual global revenues were as follows: less than US$500m (21%); US$500m–US$999.9m (23%); US$1b–US$2.9b (17%); US$3b–US$4.9b (10%); and greater than US$5b (29%).executives in 43 countries; 58% were CEOs, CFOs and other ► Global company ownership was as follows: publicly listed (62%), privately owned (32%), family-owned (3%) and government- /state-owned (3%).