Global M&A appetite seen to wane amid rising geopolitical concerns

Arecord wave of mergers and acquisitions could slow sharply as dealmakers get spooked by rising geopolitical concerns, according to a survey by Ernst & Young LLP.

Corporate takeover appetite is at a four-year low with only 46% of executives planning to make purchases in the next 12 months, according to a survey of more than 2,600 dealmakers across 45 countries by the New York-based consultancy. That’s reduced from 56% 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 un- deniable strategic imperative for deals, we can expect this year to finish with much weaker M&A than how it started.”

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 2019. The majority of those polled hold the view that global economic prospects are getting better.

The consultancy is among an increasing number of institutions warning that M&A activity could be slowing. Large crossborder deals, which fuelled 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 in September.

Companies announced about $3tn of transactions in the first nine months, according to data compiled by Bloomberg, putting 2018 on track to potentially beat the $4.1tn total set in 2007 unless there’s 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, according to the survey. This is likely to bode well for private equity activity, with about 31% of participants expecting buyout firms to be major acquirers in 2019.

The outcome of Brexit negotiations is a key concern for executives participating in the survey, the consultancy said. About 41% of the executives said they would prefer to see an economic free trade agreement similar to Switzerland’s between the UK and the European Union 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.