CEO Survey and Deals

Confident in capital, US CEOs plan growth through M&A in 2019

US more upbeat than world on M&A plans

Global tensions and looming economic concerns may have curbed some enthusiasm compared to a year ago, but CEOs at US companies still expect to be more aggressive than global CEOs with acquisitions in 2019, according to PwC’s latest global CEO Survey.

PwC’s 22nd annual survey found that 37% of CEOs globally are planning M&A in the next year, down from 42% in the previous survey. In the US, however, 52% of executives said their companies will pursue M&A in 2019. While that’s lower than last year, it still represents a substantial gap between the US and the world as a whole. By comparison, less than one-third of CEOs in Europe and Japan said they’re planning M&A in 2019.

The appetite for alliances and joint ventures (JVs) isn’t as strong; 40% of US CEOs identified those deals as a growth path – the same response as global executives. Among CEOs in China, however, 60% said their companies are planning an alliance or JV – a stark difference that could be related to growing challenges in cross-border acquisitions of businesses in the US and other Western nations. In addition, 57% of China CEOs said their firms will enter a new market as part of their growth plans, despite ongoing trade tensions.


  


CEOs mostly don't worry about access to capital

With an abundance of resources available for corporate investment, CEOs understandably may not regard access to affordable capital as a threat to business growth; PwC’s latest Deals Industry Insights discusses recent acquisitions in different sectors. What’s somewhat surprising, though, is just how low that concern is: Only 12% of CEOs globally and 7% of US CEOs said they’re extremely concerned about capital. The 20% of US CEOs who weren’t concerned at all about capital was the second-highest response among nearly 30 potential threats to growth.

Apprehension about accessing capital is down from last year, with 35% of US CEOs saying they’re somewhat or extremely concerned vs. 40% in the previous survey. Global CEOs voiced slightly more concern, and executives at Chinese companies shared more anxiety, as 57% expressed some degree of concern about capital access.

Among global executives, industries in which CEOs are most concerned about access to affordable capital are mining and metals (52%), technology (52%), real estate (49%) and energy (49%). Industries with the least concern are forest, paper and packaging (32%), insurance (34%), industrial manufacturing (35%), chemicals (35%) and communications (35%).

In addition to access to capital, more fuel for deals could come from lower tax rates approved by Congress and the Trump administration in late 2017. Only 14% of US CEOs said they were extremely concerned about increasing tax burden as a threat to growth – a dramatic change from each of previous five years, when responses ranged from 37% to 49%.


Larger forces raise concern, could influence investments

While funding for investments doesn’t worry CEOs, there are concerns about other dynamics that can sway business and growth plans. These include several larger forces related to politics, regulations, technology and demographics – all of which are reshaping M&A and other transactions in the New Deal Frontier. The biggest issue for US executives is geopolitical uncertainty, with 86% saying they’re very or somewhat concerned. Related, 69% of US CEOs said they’re concerned about protectionism, including 34% who are very concerned, up from 23% a year ago and 14% in 2015.

In addition, 76% of US CEOs expressed concern about trade conflicts, including 40% who were very concerned – second-highest among potential growth threats. The US-China trade conflict has caused the most unease by far among CEOs – not only in those two countries but other regions as well. As for the effects of these conflicts, 62% of US execs said they’ve changed their supply chain and sourcing strategy, while 30% said they’re shifting production to other territories, 23% are shifting their growth strategy to other territories and 13% are delaying foreign direct investment.


Levels of concern vary by industry

CEOs globally flagged issues that could more directly affect companies in their particular sector:

  • Trade conflicts are a bigger concern in transportation and logistics, manufacturing, and chemicals than in healthcare.
  • Protectionism is a bigger concern in entertainment and media than in hospitality and leisure.
  • Policy uncertainty and over-regulation are bigger concerns in healthcare and power and utilities than in technology.
  • Availability of key skills is a bigger concern in technology than in pharmaceuticals and energy.
  • Cyber threats are a bigger concern in banking, insurance, and power and utilities than in engineering, construction and real estate.
  • The speed of technological change is a bigger concern in banking and communications than in energy and technology.

These forces are leading many companies to reconsider their business models, which can affect decisions on growth, including deals. The latest CEO Survey findings support other PwC Deals insight on how deal strategies likely will continue to evolve to ensure acquisitions, divestitures, alliances and other transactions will deliver value in a changing world.

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Bob Saada

US Deals Leader, PwC US

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