CEO Survey and Deals

What America’s CEOs expect in M&A in 2020

US executives have a stronger appetite for deals than in other regions despite economic concerns

In PwC’s 23rd CEO Survey, US CEOs said they have a dimmer outlook on the global economy in 2020. The share of executives who expect the rate of global growth to decline doubled from last year to 62%. Despite the bearish outlook, more US executives said they were confident about the prospects for revenue growth in the longer term over the next three years versus over the next year.

Deals will play a part of CEOs’ growth plans, particularly as companies review their businesses and operations and find the right combination of divestitures and acquisitions to help execute their corporate strategy. More than half of US executives said they plan to pursue M&A to drive growth in the next year – a higher response than CEOs globally. They also largely believe affordable capital will continue to be relatively easy to access.

But while there’s both demand and capital for deals, the survey also suggests that US CEOs realize their companies are facing an increasingly complex business environment. Issues ranging from cyber threats and data privacy to global trade tensions further complicate how M&A deals could be evaluated and executed in the year ahead.

Cyber threats demand attention in deals

More than half of US CEOs said they were extremely concerned about cyber threats – highest among all threats in the survey, above concerns over trade conflicts and geopolitical tensions. While cyber threats are a concern, about 37% of CEOs both in the US and globally also worry about over-regulation. The majority of those extremely worried about over-regulation said they worried most about regulations over specific industries, but rules around cybersecurity and data privacy were also a top concern for 65% of US CEOs and 54% of global executives.

These findings shouldn’t be surprising. Security experts have found that nation-state hackers are proactively monitoring M&A within specific industries, especially technology. Since most breaches typically aren’t identified until several months after the initial attack, the lag time combined with not knowing there’s a problem complicates deals.

To address these concerns, acquirers should identify and analyze assets that are critical to a deal’s value. This means keeping the acquirer separate from the target until the acquirer can determine that the target’s systems aren’t compromised. Then ask whether the target has had an independent party test its environment for security vulnerabilities that hackers could exploit. Also, early in the deal, it will be critical to involve the acquirer and target’s chief information security officers (CISOs).

Tariffs and geopolitical tensions shift growth plans

In recent years, the US, as well as parts of Europe, Asia and Latin America, have raised tariffs and passed laws to protect jobs and certain industries amid the rise of Populism. With geopolitical tensions ongoing, half of US CEOs who are extremely concerned about trade conflicts said they’re re-evaluating their supply chain and sourcing strategy. 

The number of cross-border deals has declined in recent years, including in 2019 when the number of deals fell by about 13% to 3,312 from a year ago. During the same period, deal value dropped by 20% to $456 billion. Despite those declines, cross-border deals as a percentage of overall deal volume has remained steady in recent years, making up 25% of total US deal volume in 2017; 26% in 2018 and 27% in 2019.

Despite geopolitical tensions, China remains a key market when companies consider investing abroad: 33% of US CEOs consider the world’s second-largest economy an important territory for their organization’s growth prospects over the next 12 months. While that’s down from last year’s 39%, an increasing share of CEOs globally (29% versus 24% last year) view China as one of the most important territories for growth.

To manage tariffs and geopolitical tensions, companies will need to continue to reassess their supply chains to help mitigate the risks of retaliatory tariffs and other regulations limiting foreign investments. 

Also, the US, European Union, India and other parts of the world have stepped up reviews of foreign investments, which could prompt companies to consider a partnership, alliance or joint venture with a target or a private equity firm interested in investing in that target. These transactions could offer investors more flexibility and possibly lead to direct ownership when the time is right.

Looking ahead, confidence in revenue growth will cultivate deals. Between confident leaders, capital availability and proactive measures, organizations that are prepared for a slower economy should be able to not only weather a shifting cycle but also grow through M&A.

Contact us

Colin Wittmer

Deals Leader, PwC US

Curt Moldenhauer

Deals Sales & Marketing Leader, PwC US

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