Business leaders are continuing to reshape their company portfolios despite a challenging geopolitical environment, with 57% of Japanese corporate planning to pursue acquisitions in the next year, according to the 21st EY Global Capital Confidence Barometer (CCB).
The search for technology and talent is driving deals: 52% of Japanese respondents plan to allocate more than 25% of their total investment capital to technology, mostly solutions that drive top-line growth. Almost half (49%) of Japanese executives will invest in technology through acquisition, joint ventures or external venture funds. At the same time, almost two-thirds of respondents (65are experiencing difficulties securing the right skills and talent.
Vincent Smith, Representative Director, Chairman - EY Japan Transaction Advisory Services, says:
No economic downturn in sight for many executives
The likelihood of a recession in the near- to mid-term is not considered a significant threat: most Japanese respondents (74%) are not expecting an economic downturn. While the majority of respondents from most major economies remain confident in their economic outlook, this is deeply contrasted in Germany where 80% expect a downturn and the UK in which 62% expect a downturn. Despite these concerns, the deal market in Germany and the UK has remained active in 2019. Executives in the US are the most bullish with 78% of respondents discounting the chance of significant economic downturn in the near- to mid-term.
Companies are managing through trade and tariff issues that could be perceived as undermining economic confidence. 41% of Japanese businesses are actively planning to mitigate the impact of trade and tariff issues in ways such as reconfiguring supply chains and relocating production facilities. A further 30% are actively considering their options to respond to this fast-changing situation.
Variety in competitive and hostile deal making expected
In the context of this bullish economic outlook, the deal market going into 2020 looks set to be highly competitive. Eight in ten (78%) Japanese respondents expect to see an increase in hostile and competitive bidding in the next year and 80% of Japanese respondents expect private equity to be a major acquirer.
Japanese respondents expect increased megadeal activity ($10bn.) Almost three-quarters (76%) do not anticipate any slowdown in M&A activity overall and a similar number (73%) of Japanese corporate executives forecast an increase in cross-border deal making.
US regains top spot; UK remains attractive to investors; Japan active with large scale corporate carve outs.
The latest CCB finds that more than half of Japanese respondents expects the M&A pipeline to increase in the next 12 months.
Koichi KT Tamura, Senior Partner and Head of Japan Markets, EY Japan Transaction Advisory Services says:
The latest CCB also finds the US is the preferred place for M&A investment globally. While Brexit uncertainty continues, the survey finds UK attractiveness strong as investors rank it the second preferred investment destination globally. For Japanese investors Japan and US outpace the UK (in third in the previous year), China (fourth) and France (fifth).
Articulating purpose and long-term value creation
Purpose and social impact are rising on the boardroom agendas and are fundamentally reshaping the way companies measure success. Some 85% of Japanese companies already have, or plan to have, social value reporting metrics in place for the next year.
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How you manage your capital agenda today will define your competitive position tomorrow. We work with clients to create social and economic value by helping them make better, more-informed decisions about strategically managing capital and transactions in fast-changing markets. Whether you're preserving, optimizing, raising or investing capital, EY's Transaction Advisory Services combine a set of skills, insight and experience to deliver focused advice. We can help you drive competitive advantage and increased returns through improved decisions across all aspects of your capital agenda.
About EY Global Capital Confidence Barometer
The Global Capital Confidence Barometer gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agendas -- EY framework for strategically managing capital. It is a regular survey of senior executives from large companies around the world, conducted by Thought Leadership Consulting, a Euromoney Institutional Investor company. The panel comprises select global EY clients and contacts and regular Thought Leadership Consulting contributors.
- In August and September, Thought Leadership Consulting on behalf of EY surveyed a panel of more than 2,900 executives in 45 countries; 70% were CEOs, CFOs and other C-level executives.
- Respondents represented 14 sectors, including financial services, consumer products and retail, technology, life sciences, automotive and transportation, oil and gas, power and utilities, mining and metals, advanced manufacturing, and real estate, hospitality and construction.
- Surveyed companies' annual global revenues were as follows: less than US$500m (25%); US$500m-US$999.9m (25%); US$1b-US$2.9b (18%); US$3b-US$4.9b (10%); and greater than US$5b (22%).
- Global company ownership was as follows: publicly listed (57%), privately owned (31%), family owned (9%) and private equity portfolio company (3%).
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