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

Gulf Times Business - - BUSINESS -

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.

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