Deals and IPOs

Global dealmaking appetite falls to a four-year low amid Brexit, US-China trade fears, study says

Key Points
  • EY says 46 percent of global executives plan to buy other firms in the next 12 months. That's a 10 percent decline from the previous year.
  • Only 9 percent said they expected the mergers and acquisitions market to remain stable in the next 12 months, however EY said the current situation was likely just a "pause."
  • Britain took the second-best spot in terms of M&A destination of choice. The country came in fifth place in the firm's last survey in April.
President Donald Trump takes part in a welcoming ceremony with China's President Xi Jinping on November 9, 2017 in Beijing, China.
Thomas Peter-Pool | Getty Images

Companies' appetite for mergers and acquisitions has fallen to a four-year low, with investment pressured by worries over Brexit and the U.S.-China trade battle, according to a study released on Monday.

Less than half — 46 percent — of global executives plan to buy other firms in the next 12 months, a 10 percent decline from the previous year, EY said in its biannual "Global Capital Confidence Barometer" report.

The consultancy said that 46 percent of respondents to a survey of more than 2,600 executives across 45 countries also said they saw regulation and geopolitical uncertainty as the biggest risk to dealmaking activity over the next year.

"Geopolitical, trade and tariff uncertainties have finally caused some dealmakers to hit the pause button," Steve Krouskos, global vice chair of EY's transaction advisory services team, said in a statement.

"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."

Trade insecurities impact dealmaking appetite, expert says

This year has been a notable one in terms of so-called mega deals. German pharmaceutical giant Bayer closed its $63 billion deal to buy U.S. agriculture firm Monsanto earlier this year and American media titans Disney and Comcast became enwrapped in a high-profile bidding war that saw Disney agree to buy Twenty-First Century Fox for $71.3 billion and Comcast offering $40 billion for British rival Sky.

The EY report said that, though M&A activity had soured somewhat on political uncertainties, fundamentals remained robust, with 90 percent of company executives expecting the market to improve.

Only 9 percent of respondents to its survey said they expected the M&A market to remain stable in the next 12 months, however EY said that the current situation was likely just a "pause."

"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," said EY's Krouskos. "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."

UK No. 2 for M&A destination

Britain leapt in the tables to take the second-best spot for M&A destination of choice, EY said in its report. The country came in fifth place in the firm's last survey in April.

Companies are looking to "mitigate" the wider debate over trade and tariffs, EY said, and 20 percent of executives see the U.K. as an opportunity for M&A investment.

The U.S. took the top spot, and the U.K. was trailed by Canada, Germany and France.

"Many companies are looking to M&A to mitigate the potential impact of trade and tariff policies, secure market access and protect supply chains," Krouskos said.

"All of the top M&A destinations of choice are countries embroiled in trade uncertainties, suggesting that those companies planning deals are actively looking to get ahead of potential geopolitical disruption."

The focus on investment in U.K. companies reflects research released last month by accountancy firm Moore Stephens, which said the value of U.S. deals targeting U.K. companies had more than doubled to £79 billion ($103.1 billion) in 2017/18 from £36.8 billion in the previous year. But that study pointed to depreciation in the British pound since 2014 as the prime suspect for big takeovers.

Prominent U.S. corporate takeover deals for U.K. firms — other than Comcast-Sky — include Coca-Cola's $5.1 billion acquisition of coffee chain Costa and Apple's purchase of music identification platform Shazam. The latter deal had been reported to be worth $400 million.

Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.