CEO confidence in M&A market to drive shift from reactive to proactive deal strategy, despite macro uncertainties

• CEOs maintain a positive outlook for the coming year; EY survey finds nearly seven in 10 feel more optimistic about global growth
  
• The most confident CEOs are four times more likely to make acquisitions than their least confident counterparts
• Complex interplay of disruptive forces, including emerging technologies and geopolitical uncertainty, continue to shape CEO priorities 

CEOs globally remain confident about economic growth prospects over the next 12 months, according to the latest EY CEO Outlook Pulse survey of 1,200 executives globally, which includes a new Global CEO Confidence Index. Nearly seven in 10 (69%) of the CEOs surveyed stated that they are feeling optimistic about the global outlook for the coming year.

This confidence comes even though CEOs remain challenged on multiple fronts as they continue to navigate the complexities of an unpredictable and volatile business environment, shaped by emerging technologies, shifting consumer behavior and an uncertain geopolitical landscape.

CEOs need to shift from reactive to proactive

The survey finds that CEOs are struggling to keep pace with the fast-moving external environment. Many CEOs say they are behind when it comes to addressing industry disruption - less than four in 10 (38%) of those surveyed consider themselves ahead of the curve in effectively handling the external forces at play. For the most confident CEOs this rises to 54% versus just 8% for those feeling less confident.

However, positive CEO confidence combined with a realistic understanding of the risks and rewards stemming from external disruptive forces is expected to boost mergers and acquisitions (M&A) activity for the year ahead. More than three-quarters (78%) of the most confident CEOs reported that they are proactively assessing their portfolio in line with their core strategy as they adapt to disruptive forces, and 98% plan some form of transaction over the next 12 months. Overall, more than a third (37%) plan an acquisition in the next year, with 59% of the most confident planning to buy assets compared to just 16% of the least confident.

Andrea Guerzoni, EY Global Vice Chair – Strategy and Transactions, says:

“Today's business leaders are acutely aware of the prospects and risks associated with the disruptive forces shaping the commercial landscape. A combination of pragmatic optimism and a fear of being left behind is expected to drive investment and activity over the coming months.

CEOs will start to shift from being reactive to proactive in a bid to get ahead and capitalize on the disruptive forces at play.”

M&A outlook to be underpinned by ambition to stay ahead

In light of the current environment, CEOs recognize that conventional portfolio review processes need to change, and that traditional strategic planning and portfolio management are no longer effective. Nearly a quarter (24%) of respondents report that portfolio reviews are not aggressive enough and 23% find the process too reactive. CEOs are in turn expected to focus on adopting a more flexible and proactive approach to their portfolios, driven by a desire to fast-track innovation and transformation to stay ahead of the competition.

Transactions are therefore expected to hold steady over the coming months, underpinned by strategic alliances, joint ventures and divestments. Almost half (47%) of CEOs plan to actively pursue a strategic partnership with a third party in the next twelve months; 44% will chase divestments or IPOs; and 37% will prioritize M&A.

Top investment destinations predicted over the coming months include the US, the UK, Canada, Mexico and Germany. The most appealing sectors are likely to be banking; asset management; media and entertainment; consumer products; and insurance.

Top 5 disruptive issues at the top of the CEO agenda

The survey highlights a set of disruptive issues at the top of the CEO agenda that will collectively shape CEO activity over the coming year. These disruptions include emerging technologies, with 38% of CEOs planning to use it to deliver innovation, new business models and competitive advantage. Additionally, CEOs are acutely aware of the impact of changing customer needs (36% of CEOs view this as a priority), the altering global economic and geopolitical environment (35%), changing regulation (35%) and supply chain pressures (33%).

Notably, less than a third (29%) of CEOs say they see climate change and environmental issues as one of the top disruptive forces. Similarly, only 29% of CEOs believe access to talent is a major concern for the next twelve months.

Guerzoni says: “Transactions and deals are expected to remain consistent over the coming months as CEOs aim to keep pace with the changing external environment. Propped up by renewed confidence and a deeper understanding of the dynamic issues at play, CEOs will prioritize the disruptive forces that will deliver growth and are expected to target developed investment destinations that will help drive speed and ease.”

To read the full report, please visit: https://www.ey.com/en_gl/ceo/ceo-outlook-global-report

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About the September 2024 EY CEO Outlook Pulse

On behalf of the global EY organization, in July and August 2024, FT Longitude, the specialist research and content marketing division of the Financial Times Group, conducted an anonymous online survey of 1,200 CEOs from large companies around the world that aims to provide valuable insights on the main trends and developments impacting the world’s leading companies as well as business leaders’ expectations for future growth and long-term value creation. Respondents represented 20 countries (Brazil, Canada, Mexico, the United States, Belgium, Luxembourg, the Netherlands, France, Germany, Italy, Denmark, Norway, Sweden, the United Kingdom, Australia, China, India, Japan, Singapore and South Korea) and five industries (consumer and health; financial services; industrials and energy; infrastructure; technology, media and telecoms). Surveyed companies’ annual global revenues were as follows: less than US$500m (20%), US$500m–US$999.9m (20%), US$1b–US$4.9b (30%) and greater than US$5b (30%).

The CEO Confidence Index was constructed by quantifying CEO sentiment across various economic and business dimensions. CEOs rated their outlook on 15 statements using a 5-point scale ranging from "very pessimistic" (0) to "very optimistic" (100). These responses were aggregated into five thematic groups: sector growth, prices and inflation, company growth, talent, and a composite investment and technology. An overall one-number index was then calculated by averaging scores across these groups.