Mergers stay strong despite sentiment
Mergers and acquisitions are expected to remain active in the long run despite some executives looking to put them on hold in an age of complexity, according to a survey.
Chinese executives see upside in the global economy as nearly 90 percent of respondents predicted an improving M&A environment, according to the report by EY released yesterday.
The survey showed some executives around the world are suspending trading because of uncertainties over regulations, trade and tariffs.
But given the momentum of the M&A market and strong incentives to pursue deals, there is almost unanimous agreement that the environment for transactions will improve or remain stable over the next 12 months.
Global corporate earnings in the first half of 2018 were higher than expected, giving executives more confidence in the outlook for capital markets as well as improved valuations, the report said.
Of those surveyed in China, 75 percent saw the global economy as growing, 34 percent said they would actively pursue acquisition opportunities in the short term, and 87 percent expected global M&A activities to be more active.
"The contradiction between the expectation of M&A market growth and the decrease of its own M&A intentions indicates that this is only a short-term adjustment," said Stella Yuan, China central leader for transaction advisory services at EY.
"Given the large number of deals over the past year, many companies will focus more on consolidating recently acquired assets in the next 12 months. At the same time, companies are actively evaluating their existing portfolios.
"This is likely to prompt a new wave of assets to enter the market over the next 12 to 14 months, with private equity funds expected to buy up a lot of them."
In terms of sectors, financial services, health care, telecommunications, real estate hotels and construction, oil and gas, and industry are most likely to become the hottest sectors for Chinese companies' M&A deals, the report said.
Entering new geographic markets, attracting talents and securing supply chains were the three main drivers for M&A activities among Chinese respondents. And the top five M&A investment destinations for Chinese companies are China, the United States, Singapore, Japan and Australia.
The report also pointed out that disruption, technology and changes in customer preferences are among the biggest risks companies are faced with in the near term.
Tang Yimeng, Asia-Pacific managing partner of EY, said: "While not capturing as many headlines as trade and tariff policy, disruptive forces, especially technology, remain at the heart of the known risks. The pace of change triggered by technology, particularly the technology that enables customers to adapt preferences or buying behaviors, cannot be underestimated.
"Pressure from consumers drives companies to break through the boundaries of traditional industries, and mergers - and acquisitions may be the fastest route for companies to deal with these challenges," Tang said.
The research surveyed more than 2,600 senior executives from 45 countries and regions, including 174 from China. Respondents are from 14 industries with 1,567 CEO, CFO and other C-level executives.