UK companies are increasingly worried about the economy – but want to do lots of M&A deals
UK businesses are increasingly pessimistic about the economy – but hungry to complete deals.
A new EY study found confidence in the mergers and acquisitions (M&A) market has eased back on levels seen at the end of 2015, a record year for announced deals.
But the 14th Global Capital Confidence Barometer found UK executives' M&A appetite has never been as high since EY started its survey in 2009.
Read more: Dealmakers shrug their shoulders at Brexit in global M&A survey
Some 59 per cent of UK executives expected their companies to pursue acquisitions in the next 12 months.
According to the Barometer, 70 per cent of UK respondents expect their next deal to be outside of the UK. But it said focus has moved closer to home, with Germany and Sweden replacing Canada and Australia in the top five target areas of investment.
The UK and US remained top, while China slipped from third to fifth.
Another recent report, published last month by law firm Herbert Smith Freehills, also found appetite for M&A has been largely unaffected by economic volatility in 2016. The authors of the report told Morning Wire that, looking at the appetite for M&A, activity could increase beyond the 2015 boom in 2017 and 2018.
Stephen Wilkinson, HSF's global head of M&A, told Morning Wire: “Companies are clearly prioritising their capital for M&A. There's a supportive environment for companies – in particular corporates – doing M&A because in a low organic growth environment with a historically low cost of borrowing, and high availability of funds for M&A, it is seen as very much a growth strategy for corporate boards.”
Read more: Why Brexit vote should not be used as scapegoat for falling M&A activity
The EY report also found confidence in the economy was shown to have plummeted. Six months ago, 94 per cent of respondents said they expected a modest or strong improvement in the global economy. This has now tumbled to 27 per cent.
Confidence in the UK economy has fallen also. Six months ago, 69 per cent expected a modest or strong improvement. This figure is now eight per cent.
UK respondents saw economic and political uncertainty in the EU (27 per cent) and commodity and currency volatility (27 per cent) as the greatest risks to their businesses in the next six to 12 months.
Read more: Why 2016 is already the worst year for collapsed deals in the US
Michel Driessen, EY's transaction advisory services market leader for the UK and Ireland, said: “The outlook for the next six months is clearly uncertain, but, if anything, UK executives have moved more onto the front foot. They are looking to spread their bets, exploit new technologies, improve productivity, and make deals and alliances that will protect and strengthen their businesses in uncertain times.”
He added: “Acquisitions, as well as alliances, will be part of the corporate growth agenda for the foreseeable future.”