By Andrea Guerzoni | EY Transaction Advisory Services Leader for Europe, the Middle East, India and Africa
Eurozone companies build confidence by making their portfolios fit for an optimistic future, according to EY’s 18th Global Capital Confidence Barometer.
Our M&A survey finds Eurozone companies optimistic about economic and capital market conditions over the next 12 months. The turnaround in market conditions signaled in the previous two Barometers looks set to continue, with 70% of respondents expecting the Eurozone economy to perform better than in 2017. Expectations for credit availability, market stability and valuations also signal a confident outlook.
And this optimism is fueling dealmaking intentions. A near record 58% of respondents say they plan to pursue acquisitions in the next 12 months, with 60% expecting to increase deal pipelines and 70% deal completions.
Caution not complacency is the order of the day
Despite the optimism, risks remain prominent on the boardroom agenda. The potential for rising inflation to undermine investment plans has returned after a prolonged period of no or low pricing pressures. Elevated geopolitical tensions and political uncertainty are equally a concern.
Respondents are also grappling with other emerging disruptions to their business models. More than half of respondents (54%) say artificial intelligence (AI) and robotic process automation (RPA) are prominent on their boardroom agenda. And two-thirds (67%) are trying to understand how best to utilize contingent workers.
Businesses focus on M&A to transform and future-proof their portfolio
The paramount issue in boardroom thinking is portfolio transformation — the need to reshape the business through the buying and selling of assets. Two-thirds (66%) of Eurozone executives cite this as the key issue they are focused on in the next 12 months.
As well as an increase in buy-side dealmaking, Eurozone companies are also increasing the frequency of portfolio reviews. The reasons given are familiar in today’s business landscape — the threat from digitally enabled competitors and start-ups, and increasing competition from companies in other sectors.
These reviews are enabling companies to future-proof their portfolios. They are identifying underperforming assets (33%) or those parts of their business at risk from disruption (38%) to divest. They are also identifying strategic gaps in their portfolio where they need to invest (15%).
Eurozone companies are not being complacent during this period of growth. They are aware that changes in business models and the accelerating pace of digital innovation not only provide threats but also opportunities for growth. Eurozone respondents are clearly looking to make their portfolios fit for the future.
Compliments of EY, a member of the EACCNY