According to KPMG's 2019 Global CEO Outlook, which reflects the views of 1,300 CEOs from some of the world's largest organizations, inorganic initiatives like M&A and partnering are no longer just about financial expediency, but should instead be a means to address more fundamental business challenges. More than half (55 percent) of the CEOs we surveyed say their organization must look beyond pure financial growth if they are to achieve long-term, sustainable success. And two-thirds (67 percent) believe that “acting with agility is the new currency - without which we could be bankrupt.”
Such sentiments acknowledge the potentially existential threat of disruption.
How are these changes likely to impact the deal market?
Despite a record high deal market over recent years, the appetite for M&A has certainly not been sated, with 84 percent of CEOs expecting to make an acquisition within the next 3 years. KPMG analysis shows that deal values remain high, although deal volumes are relatively low.
Larger companies are the most likely to pursue M&A, with mid-size firms leaning more towards joint ventures (JVs), while smaller companies favor alliances.
Sector view
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Consumer & Retail
Energy
Industrial manufacturing
Insurance
Consumer & Retail
Faced with strong influence of millennials and Gen Y on global consumption, increased consumer spending and the opening up of emerging markets, sector players are challenged to transform business models and optimize their use of digital technology, to meet the preferences and expectations of today’s global consumers.
Consumer & Retail
Consumer & Retail
Digital transformation will be front and center as investors pursue inorganic means to get closer to the customer and to remain competitive. We expect more businesses to form alliances or partnerships with tech companies, acquiring sophisticated technology that quickly enhances both internal operations and customer interactions.
KPMG’s Consumer & Retail M&A trends 2019 report – The race for game-changing transformation and strategic growth – reveals how industry players, via M&A, are responding proactively to the fast-evolving behavior of today’s global consumers.
Energy
Deal making in the Energy sector will be driven by three key global themes:
Firstly, traditional utilities will be seeking to transition their business models through the acquisition of clean, renewable energy businesses and capabilities. These utilities will compete for assets against increasingly dynamic financial investors building large portfolios, who may emerge as the utilities of the future.
Energy
Energy
Secondly, governments and government-owned utilities are seeking to prepare for and manage energy transition. Large integrated utilities need to take a hard look at their current position and assess which segments of their business are crucial to their future; a trend that’s triggering a lot of activity. The traditional integrated utility business model is under intense review everywhere. As energy markets continue to globalize, utilities are competing against large financial investors and foreign investors across all major markets.
Finally, Chinese investment as Chinese businesses seek to deploy technology and capital in growing markets at home and abroad.
Industrial Manufacturing
The drive to implement new digital technologies and redefine business models will likely remain a key factor fueling deal-making.
Industrial Manufacturing
Industrial Manufacturing
Deals should continue to be driven by game-changing innovation. In addition, climate change and the resulting search for new environmental technologies in heating, ventilation and insulation, will also play a role in the Industrials market. We expect industrial players to continue dominating among cross-sector deals.
Industrial Manufacturing
Insurance
On the insurance front, we anticipate an active M&A market as the industry accelerates its evolution into the future.
Insurance
Insurance
Ram identifies four key themes in play across the sector, as insurers evaluate:
Growth: How to transform the business model, including evaluating adjacent markets, emerging technologies and new geographies
Costs: How to modernize the operating model, enhance agility and acquire capabilities to become future-ready
Customers: How to enhance customer experience and engagement via acquisition of strategic customer solutions
Innovation: How to strategically invest, acquire and partner to access emerging technologies and innovation capabilities.
Organic growth continues to be a challenge in the global insurance industry, amid weak premium growth rates, changing consumer behaviors and anticipated technological disruption. Many insurers are rethinking which business segments and regions around the world are still core to them for sustainable, profitable growth. They recognize that what may have been core in the past may not necessarily be so important in the future. We expect to see continuing divestment of legacy portfolios in the US and across Europe, as larger life insurers free up capital for deployment in more strategic, focused and transformative M&A.
Navigating the new ecosystem
As they seek new capabilities to grow in a connected world, companies should think about the following key issues.
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