Based on a survey of more than 1,800 senior executives, conducted by the Economist Intelligence Unit on behalf of EY, the Barometer found that despite uncertainty over the strength of Chinese demand and volatility from the US interest-rate rise in December, few companies are changing their investment plans. About half of those surveyed expect the global M&A market to remain the same over the next 12 months. Moreover, this portion of respondents also expects the low GDP growth of 2015 to continue through 2016. This number has increased sizeably from 9% in October 2015 to 47% this year.
The survey respondents’ GDP expectations closely mirror The EIU view that global growth will remain fairly stable, decreasing from 2.4% in 2015 to 2.3% this year. The gradual approach to raising interest rates by the US Federal Reserve, further quantitative easing measures by the European Central Bank and the appreciation of emerging market currencies against the dollar have also helped to boost confidence. The Barometer indicates that the appetite for investment is strong, with companies gearing up towards bigger and bolder acquisitions. Companies’ plans to execute acquisitions in the upper-middle-market range (deals between US$250m–US$1bn) grew by 50% - maintaining a trend observed since 2014 - and an escalating trend in companies buying assets between US$1b–US$5bn was also seen.
Despite the recent rally in equities, commodity prices and currencies, their buoyancy is volatile. Oil prices have improved since their low levels at the end of 2015 - Brent crude oil is averaging at US$40/b - but supply is still exceeding demand and prices will also depend on the actions of OPEC and US shale gas producers. Nonetheless, volatility has not dampened investor sentiment. Survey respondents remain upbeat on corporate earnings, equity valuations and credit availability, holding the view that although tricky market conditions exist, there are few threats of systemic shocks in capital markets or impending asset bubbles.
Although roughly a third of survey respondents consider global and regional political instability to be the greatest economic risk to their businesses over the next 6-12 months, these issues have not shifted medium-long term capital allocation strategies. Some hotspots like the Middle East have been conflict-prone for a number of years and as a result, firms have been able to adapt their strategies accordingly. Additionally, the Barometer shows that western Europe is once again a prime destination for M&A activity in spite of possible disruption due to the impending Brexit vote, the migrant crisis and Greece’s economic woes. Overall, robust M&A activity looks set to continue with 47% of companies expecting to actively pursue acquisitions in the next 12 months as executives aim to drive their companies forward.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.
