Geopolitical uncertainty has caused mergers and acquisitions (M&A) appetite to decrease to a four-year low, due to regulatory, trade and tariff uncertainty, according to the EY Global Capital Confidence Barometer, a biannual executive survey. Just 46 per cent of the 2,600 global executives in 45 countries plan to acquire in the next 12 months, down from 56 per cent a year ago, and some say they have paused M&A activity due to regulatory, trade and tariff uncertainty such as Brexit. Despite this, the UK is still the number two investment destination of choice, according to the survey.
The survey report notes, however, that even though 2018 is on track to become a near-record year for the number of global M&A deals, activity is subdued in part due to ongoing trade and tariff negotiations, including Brexit talks and the US-China trade disputes.
Lower appetite but fundamentals strong
EY's Steve Krouskos commented: “Geopolitical, trade and tariff uncertainties have finally caused some dealmakers to hit the pause button. 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. The good news is that companies will likely take the break in action as an opportunity to focus on integrating the many deals undertaken over the past 12 months. This is likely to be just a pause, not a complete stop. Fundamentals and the strategic rationale for deals remain strong, and the appetite to acquire will likely grow toward the second half of 2019.”
Most respondents (90 per cent) expect the global M&A market to improve and 9 per cent expect it to remain stable in the next 12 months, while 85 per cent believe global economic growth prospects are improving. Only 2 per cent predict short-term market stability to decline and 2 per cent predict equity valuations to deteriorate.
Brexit causing business anxiety
The survey also found that the outcome of Brexit negotiations is a focus for executives with most hoping that the outcome will be an Economic Free Trade Agreement similar to Switzerland’s (41 per cent). Just 22 per cent said they would prefer a Canada Free-Trade Agreement model and even fewer said they would prefer a second referendum (5 per cent) or trade based on WTO rules (6 per cent).
The barometer also highlights the impact of Brexit in relation to financial services. Forty-three percent of all respondents state they would be less likely to buy financial products and services from London-based providers when the UK leaves the EU.
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