London: Executives around the world are cooling to the idea of mergers and acquisitions in the face of rising trade tensions, notably between the US and China, a leading adviser on international corporate deals said Monday.
In its half-yearly assessment of corporate mergers and acquisitions, or M&A, EY found that only 46 per cent of executives are planning a takeover in the next 12 months. That’s down 10 percentage points from a year ago and marks the lowest level in four years.
“Geopolitical, trade and tariff uncertainties have finally caused some dealmakers to hit the pause button,” said Steve Krouskos, a global vice chair at EY. “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.”
EY highlighted the dispute between the US and China and uncertainty over Britain’s looming exit from the European Union as key reasons behind the decline in executives’ interest in deals. The former has already led to an increase in tariffs, the latter could still yet.
Higher tariffs have the potential to weigh on global growth, especially if countries pursue a series of tit-for-tat measures. That was evident Monday after Beijing injected money into its cooling economy by reducing bank reserve levels. Chinese leaders are trying to shore up economic growth, which has eased because of the tariff fight with US President Donald Trump.
Though EY noted a decline in appetite for deals, it said the overall outlook remains positive, with 90 per cent of executives expecting the global M&A market to improve in the next 12 months and a similar amount believing global economic growth prospects are improving.
“This is likely to be just a pause, not a complete stop,” Krouskos said.
Krouskos said companies are likely to use the upcoming period to bed in deals undertaken over the past 12 months and that 2018 will remain one of the biggest-ever for the number of M&A deals.
This year has seen a number of mega deals including Comcast’s capture of British satellite television company Sky in a rare auction for around $40 billion (Dh147 billion) and Disney’s agreement to buy Twenty-First Century Fox’s entertainment assets for $71 billion. German pharmaceutical firm Bayer closed its $63 billion acquisition of US seed and weed-killer maker Monsanto.
EY’s survey was based on responses from more than 2,600 executives across 45 countries.