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 fonds seven in 10 respondents feel more optimistic about global growth
• Singapore CEOs seek to pursue transactions to stay ahead, with a focus on M&A and divestments or IPOs
• Complex interplay of disruptive forces, including changing regulations, high cost of capital and changing customer needs, continue to shape Singapore CEOs’ 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, including 40 in Singapore. The survey includes a new Global CEO Confidence Index. Seven in 10 (Singapore 70%, global 69%) of the CEOs surveyed stated that they are feeling optimistic about the global outlook for the coming year.

This confidence is noted 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– just 13% of Singapore respondents (global 38%) consider themselves ahead of the curve in effectively handling the external forces at play. 

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. About two-thirds (Singapore 64%, global 72%) of respondents reported that they are proactively assessing their portfolio in line with their core strategy.

Sriram Changali, EY-Parthenon Asean Value Creation Leader, 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. For Singapore firms, they face greater pressure from global geopolitical challenges given their business exposure to jurisdictions around the world. At the same time, emerging technologies like generative artificial intelligence (GenAI) has brought the war for talent closer to their doorsteps. Hence, CEOs will need to move 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. 

Respondents in Singapore confronted by the lack of ability to read from the portfolio reviews on their performance and how they measure up. Specifically, CEOs shared that the key challenges faced with their portfolio reviews are the lack of effective metrics to measure how business contribute to strategy and total shareholder returns (Singapore 23%, global 24%); the ability to compare portfolio businesses against industry performance benchmarks (Singapore and global 23%); and the disconnect between portfolio review and necessary M&A actions (Singapore 23%, global 18%).

Hence, CEOs are 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. 

The survey found that 98% of Singapore and global respondents plan some form of transaction over the next 12 months. 48% of Singapore respondents (global 37%) who intend to do so are planning an M&A in the next year, while 40% (global 44%) will chase divestments or IPOs; and 33% (global 47%) plan to actively pursue a strategic partnership with a third party.

Andre Toh, EY Asean and Asia-Pacific Valuation, Modeling & Economics Leader, says: 
“Intangibles such as technology, customers and brand names can become attractive M&A propositions in the information age today, as they are value accretive without overloading the balance sheet. However, companies need to be mindful of the disconnect between portfolio and necessary M&A actions; the lack of effective metrics to measure how business units contribute to strategy and total shareholder return; and the difficulty in comparing against industry performance benchmarks for transactions involving intangibles.”  

The survey also found that over half (Singapore 62%, global 93%) of the surveyed CEOs have paused or canceled a transaction in the past 12 months. The top reasons for doing so were geopolitical uncertainty (Singapore 20%, global 18%), valuation gap (Singapore 18%, global 15%) and regulatory uncertainty (Singapore 15%, global 16%). 

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. The disruptions that Singapore CEOs were most concerned about was changing regulations (Singapore 41%, global 35%); followed by elevated cost of capital (Singapore 38%, global 33%), changing customer needs (Singapore and global 36%), the altering global economic and geopolitical environment (Singapore 36%, global 35%), access to talent (Singapore 36%, global 29%), and emerging technology (Singapore 34%, global 38). 

Interestingly, less than a third of CEOs saw supply chain pressures (Singapore 29%, global 33%) and climate change and environmental issues (Singapore 18%, global 29%) as major disruptive forces. 

Toh says: 
“It is no surprise that evolving regulations is a top concern as Singapore is a trade-reliant economy. Hence, any perceived tightening of regulations, especially those affecting cross-border trades, can have a material impact to Singapore enterprises. To this, scenario planning and supply chain risk management will be key. Changing customer needs is also concerning, as customers today are constantly bombarded with information and choice, and so companies need to continually innovate and differentiate themselves to remain appealing.”

To read the full report, please visit: https://www.ey.com/en_sg/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.