There is no letup in executives’ appetite for corporate takeovers, despite volatility in the stock market and mounting concerns over the global economy, particularly China.
According to a survey released yesterday by consulting firm EY, the recent wave of mergers and acquisitions (M&A), is set to continue over the coming year. It found that 59 percent of global companies are planning to secure at least one deal over the next 12 months, partly as a means of cushioning waning global growth as China’s economy slows.
The figure for this month was up from 56 percent in April and 40 percent in the same period last year. It represents the highest interest in acquisitions that EY’s survey of corporate deal-making has found in its six-year history. The low point was at the start, when only 24 percent of companies signaled the intention to make a takeover.
“With modest increases in global GDP, organic growth alone is not enough for companies to expand and reshape at the pace they need,” EY global head of transactions Pip McCrostie said.
“The search for growth is lifting deal-making to record highs, and executives are focusing on M&A to secure innovation, competitive advantage and market share for the foreseeable future,” she added.
M&A activity has significantly gathered pace this year, with deal values already up 35 percent from last year and more megadeals — those valued at greater than US$10 billion — this year than in any previous year of the survey’s history, according to EY.
Earlier this month, the world’s top two beer makers agreed to join forces to create a company that would control nearly one-third of the global market. Much of the logic behind the £69 billion (US$105.8 billion) takeover of British-based SAB Miller LPC by Anheuser Busch InBev SA/NV is to cope with faltering beer consumption in many parts of the world.
Other big deals this year include Royal Dutch Shell PLC’s £47 billion yet-to-be-completed acquisition of BG Group PLC, as well as the US$62.6 billion merger between H.J. Heinz Co and Kraft Foods Group Inc, which is now called Kraft Heinz Co.
EY said the boundaries between industries looks set to blur, with 48 percent of executives planning acquisitions in a different sector as new technology impacts almost everything along the business chain, with the manufacturing and retail sectors set for the most such activity. Companies are also increasingly ready to make deals outside their home country.
The firm said 70 percent of respondents are looking to do so, with the 19-country eurozone set to see a rise in deals amid hopes that the debt crisis that has gripped the region has abated following the latest bailout of Greece.
“This is down to increased confidence in the stability of the region,” McCrostie said.
Although deal-making has been on the rise over the past few years, as the global economy recovered from its deepest recession since World War II and companies built up their cash reserves, EY says it could have been even higher. It said that 73 percent of executives have walked away from deals over the past 12 months.
“Executives are taking a long-term view and evaluating deals more carefully than ever before,” McCrostie said. “They are stepping back when necessary.”
EY’s report was based on surveys of more than 1,600 executives in 53 countries.
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