LONDON • A record wave of mergers and acquisitions (M&A) could slow sharply as dealmakers get spooked by rising geopolitical concerns, according to a survey by Ernst & Young (EY).
Corporate takeover appetite is at a four-year low, with only 46 per cent of executives planning to make purchases in the next 12 months, according to a survey of more than 2,600 dealmakers across 45 countries by the New York-based consultancy. That has reduced from 56 per cent of executives polled last year.
The slowdown is likely to be only temporary, and the strategic rationale for acquisitions still remains strong, with EY forecasting that activity will pick up in the second half of next year.
"Geopolitical, trade and tariff uncertainties have finally caused some dealmakers to hit the pause button," EY's global vice-chair of transaction advisory services, Mr Steve Krouskos, said in the report.
"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."
The consultancy is among an increasing number of institutions warning that M&A activity could be slowing down. Large cross-border deals, which fuelled a boom in activity in the past five years, are likely to slow due to the impact of trade wars and regulation, JPMorgan Chase said in September.
Companies announced about US$3 trillion (S$4.15 trillion) of transactions in the first nine months, according to data compiled by Bloomberg, putting 2018 on track to potentially beat the US$4.1 trillion total set in 2007, unless there is a sharp slowdown in the fourth quarter.
NEW FUNDING ENVIRONMENT
The rise of private capital, including private equity, super funds, sovereign wealth funds and corporate venture capital, has fundamentally reshaped the funding environment and will help refresh M&A activity in the future.
MR STEVE KROUSKOS, EY's global vice-chair of transaction advisory services.
Companies are taking more time to review their portfolios amid the uncertainty and are likely to divest more assets, according to the survey.
This is likely to bode well for private equity activity, with about 31 per cent of participants expecting buyout firms to be major acquirers next year.
"The rise of private capital, including private equity, super funds, sovereign wealth funds and corporate venture capital, has fundamentally reshaped the funding environment and will help refresh M&A activity in the future," Mr Krouskos said.
The outcome of Brexit negotiations is a key concern for executives participating in the survey, the consultancy said.
About 41 per cent of the executives said they would prefer to see an economic free trade agreement, similar to Switzerland's, between Britain and the European Union when they separate.
Despite the uncertainties surrounding Brexit, Britain was the No. 2 choice for the polled executives in terms of M&A transactions, up from fifth in an April survey.