Canadian executives are curbing their deal-making appetites amid policy and political uncertainty, according to a report published Tuesday from Ernst & Young Global Ltd. (EY Global).
The latest edition of the EY Global Capital Confidence Barometer finds merger and acquisition (M&A) activity is looking weaker for the next 12 months, both on a global basis and in Canada specifically.
Although the executives surveyed feel relatively optimistic about the underlying economic outlook, their eagerness for deals is moderating.
For instance, 73% of Canadian executives surveyed see corporate earnings improving, and 81% expect the M&A environment to improve, but only 46% intend to actively pursue acquisitions in the next 12 months.
“Confidence is there, but deal intentions are lacking,” says Doug Jenkinson, partner in EY Canada’s transaction advisory services practice. “Canadian executives are taking stock after recent record levels of M&A activity. Unachieved synergies in recent transactions and rising geopolitical uncertainty is pushing deals down the boardroom agenda for the time being.”
This isn’t just the case for Canada, the report indicates that the global appetite for M&A is also tapering. Indeed, it projects that the number of deals in the next 12 months will be lower than in the previous year. The report points to a couple of key reasons for this uptick in caution: growing policy uncertainty (including rising concerns about trade policy, Brexit, and regulation); and the need for companies to take time to digest the recent rash of deals.
For Canada specifically, 19% of executives say that trade policies are making them reconsider potential acquisitions. “The shift from NAFTA to USMCA is on the minds of executives, and many are waiting for more clarity before firming up deal plans,’’ says Jenkinson. “It’s an opportune time to invest in existing operations and strengthen core competencies in order to act quickly once the dust settles.”
At the same time, i53% of Canadian respondents say that they have achieved lower than expected synergies from past deals this year. “Realizing synergies and optimizing integration can mean the difference between a good and a bad deal,” says Jenkinson. “Most executives value synergies at about a third of the total deal value. That’s why it’s so important that businesses invest in the right corrective measures to help them achieve the synergies identified when the deal was struck.”
The survey of senior executives from large companies around the world was carried out in August and September with a panel of more than 2,600 executives in 45 countries from a variety of sectors.