As companies continue to navigate the current COVID-19 pandemic environment and its unprecedented disruption, business executives are emboldened to reset their mergers and acquisitions (M&A) and investment strategies to secure growth for their businesses in the post-pandemic world, according to the 23rd edition of the EY Global Capital Confidence Barometer (CCB23), released by EY.
According to the report, responding business leaders expect a return to pre-pandemic levels of profitability in 2021 (23%) or 2022 (44%), marking improved sentiment among the C-suite compared to last year. Executives are also scanning their geographical footprints for growth.
Europe (39%) is emerging as the region anticipated to generate the most growth and opportunities over the next three years, with 39 percent of respondents seeing the region attracting the highest growth. This is followed by Asia-pacific (30%) and the Americas (24%).
In terms of factors that could put growth prospects at risk, the impact of the COVID-19 pandemic remains the biggest threat for responding executives (29%). The changing global economic environment (19%) and climate change (14%), also emerge as top threats.
Geopolitical challenges have forced the majority (81%) of respondents to alter their strategic investment plans in the past 12 months. Nearly two-thirds (64%) of that group delayed a planned investment and more than a third (36%) terminated their plans altogether.
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As the C-suite plans for a post-pandemic business landscape, the majority of respondents (86%) say that they conducted a comprehensive strategy and portfolio review in 2020. For two-thirds (66%) of that group this was unplanned and a direct response to changing events, according to the findings.
Damilola Aloba, partner, strategy and transactions, EY notes that for many business leaders, the emergence of the COVID-19 pandemic and the resultant economic shock, have acted as existential threats to their businesses.
According to Damilola, the C-suite has responded by resetting their strategies and making far-reaching changes with a focus on transformation. These bold moves are now fueling an optimistic mindset and a strategic agenda firmly focused on capturing growth opportunities. Companies plan to not only restore performance levels but also make the necessary investments to reframe their future.”
C-suite sees a route to growth through M&A and investment.
Despite a collapse in M&A in the first half of the year, deal-making in 2020 reached the highest transaction value on record in the second half. Global M&A value reached $2.32t in H2 2020 and transactions’ activity rebounded by 123 percent between H1 and H2.
The heightened deal activity looks set to continue with nearly half of responding business leaders (49%) planning to acquire assets in the next 12 months, beating the 11-year average (47%), according to CCB23. Also, nearly two-thirds of executives (65%) plan to acquire cross-border targets, as they look to enhance capabilities and products needed for growth. Financial Services, Consumer and Retail, Telecommunications, Technology and Healthcare top the list of the most acquisitive sectors.
The C-suite is looking to M&A to build resilience in their companies’ operations and navigate emerging concerns about tariffs and trade flows (26%). Acquiring the technology, talent, new production capabilities or innovative startups (25%) to secure growth and the effects of sector convergence (21%) will also drive strategic acquisitions.
