Businesses using M&A to respond to global uncertainty

CEOs in the UK are increasingly using M&A activity as a way to respond to mounting global uncertainty and geopolitical turmoil. Acquisitions are being seen as an effective way to safeguard growth, respond to changes caused by events such as COVID-19 and Brexit and to futureproof operations against further crises.

A recent survey of FTSE 250 directors by Numis found that 86 per cent were planning to ramp up their M&A activity this year, with Numis Head of M&A Stuart Ord calling acquisitions a “defensive necessity to adapt to new realities”.

In a survey of UK CEOs by EY, meanwhile, 66 per cent reported that they were planning to accelerate their M&A strategies this year, with many planning to do so in response to rapid changes in both their sector and society at large.

COVID-19 continues to be a major driver of M&A activity in many sectors. EY said the pandemic: “has become a significant catalyst for corporate transformation in the UK, interacting with existing trends, accelerating change, and throwing up new challenges that CEOs can’t ignore.”

Geopolitical turmoil, meanwhile, is also a major worry for companies, with 18 per cent of CEOs polled by EY saying geopolitical tensions, trade conflicts, protectionism and sanctions were there number one concern. In order to meet these challenges, which have major implications for supply chains, many companies are turning to M&A.

88 per cent of firms said they would seek to alter their geographical profile in order to safeguard their supply chains and M&A is a crucial way for companies to digitise, nearshore and streamline logistics and respond to geopolitical disruption.

Futureproofing is also driving M&A activity, as companies seek to strengthen operations against crises that are yet to come. In EY’s survey, over 50 per cent of CEOs said they would direct capital investment towards growth engines or totally new ideas over the next five years.

EY’s Steve Ivermee commented: “CEOs are taking action to mitigate against short-term pressures, whilst also acting to reshape their businesses, build resilience, and create a more stable platform for growth. The last two years have been a period of intense change. Businesses need to review the profile of their business and its wider ecosystem to position themselves successfully for the future.”

While the war in Ukraine has emerged as 2022’s biggest crisis so far and has been called the key factor in European M&A slowing down this year, there is still evidence that the conflict is driving dealmaking in certain sectors.

For example, the onset of the war saw many national security organisations, including the UK’s National Cyber Security Centre (NCSC) reiterate the need for heightened cybersecurity. The NCSC has formally called on businesses to improve their defences and this will undoubtedly lead to cybersecurity M&A.

Lloyd Evans, an analyst at Gambit Corporate Finance, said: “In terms of M&A, increased demand is expected to fuel the continued appreciation of deal volumes and values as strategic acquirers look to onboard capabilities and consolidate while financial acquirers look to gain exposure in the sector, providing a window of opportunity for shareholders to crystalise value at elevated levels.”

You can read more on this issue in our in-depth insight on using M&A as a strategy to mitigate global disruption.

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