A record wave of mergers and acquisitions (M&A) could slow sharply as dealmakers get spooked by rising geopolitical concerns, a survey by Ernst & Young LLP (EY) has found.
Corporate takeover appetite is at a four-year low with only 46 percent of executives planning to make purchases in the next 12 months, according to the survey of more than 2,600 dealmakers across 45 countries by the New York-based consultancy.
That has reduced from 56 percent of executives polled last year.
“Geopolitical, trade and tariff uncertainties have finally caused some dealmakers to hit the pause button,” Steve Krouskos, EY’s global vice chair of transaction advisory services, said in the report.
“Despite stronger-than-anticipated first-half earnings and the undeniable strategic imperative for deals, we can expect this year to finish with much weaker M&A than how it started,” he said.
The slowdown is likely to be only temporary and the strategic rationale for acquisitions still remains strong, with EY forecasting that activity will pick up in the second half of next year.
The majority of those polled hold the view that global economic prospects are getting better.
The consultancy is among an increasing number of institutions saying that M&A activity could be slowing.
Large cross-border deals, which fueled a boom in activity in the past five years, is likely to slow due to the impact of trade wars and regulation, JPMorgan Chase & Co said last month.
Companies announced about US$3 trillion of transactions in the first nine months of this year, according to data compiled by Bloomberg, putting this year on track to potentially beat the US$4.1 trillion total set in 2007 unless there is a sharp slowdown in the fourth quarter.
Companies are taking more time to review their portfolios amid the uncertainty and are likely to divest more assets going forward, the survey found.
This is likely to bode well for private equity activity, with about 31 percent of participants expecting buyout firms to be major acquirers next year.
“The rise of private capital, including private equity, super funds, sovereign wealth funds and corporate venture capital, has fundamentally reshaped the funding environment and will help refresh M&A activity in the future,” Krouskos said.
The outcome of Brexit negotiations is a key concern for executives participating in the survey, the consultancy said.
About 41 percent of the executives said they would prefer to see an economic free-trade agreement similar to Switzerland’s between the UK and the EU when they separate.
Despite the uncertainties surrounding Brexit, the UK was the No. 2 choice for the polled executives in terms of M&A transactions, up from fifth in an April survey.
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