Two-thirds of UK CEOs to accelerate M&A agenda in 2022

The majority of UK corporates are expecting to accelerate investment and undertake mergers and acquisitions in 2022. Many firms see building their portfolios through deals as an important way of adapting to continued economic, social and political uncertainty.

2021 went down as the best year on record for the global merger & acquisitions market, according to multiple end-of-year analyses. Across all deal types, it was a bumper year, with deal value jumping from $3.7 trillion in 2020 to $5.3 trillion in 2021 – and the feeding frenzy is showing no signs of slowing in the new year.

A new poll from Big Four firm EY has found that 66% of UK CEOs expect to pursue transactions in the next 12 months. Even after a period of intense deal activity, many view it as a crucial strategic option while responding to rapid change.

Globally, the UK is ahead of the curve, but M&A sentiment is still high everywhere else. Around 59% CEOs globally are still keen to purchase bolt-ons, compared to 57% of executives surveyed last year.

Steve Ivermee, UK & Ireland Strategy and Transactions Managing Partner at EY, stated, “For many companies, M&A remains a fundamental part of how they act on and deliver on their strategic growth plans. From rationalising their portfolio, to digital transformations and improving their ESG profiles, companies are using deals to reshape their business at pace. Given the intense level of deal activity we’ve seen in the last two years, many companies will be integrating recently acquired assets, but UK CEOs are still signalling that they remain strategically poised to buy assets that support their growth ambitions.”

First and foremost, many CEOs are still looking to help their firms adapt to the post-pandemic environment. While the largest minority of CEOs said the pandemic had only been a ‘short-term’ disruptor for their industry, a similar number said they had been seen shifts occur that will stand in place for years to come.

A 21% portion said the pandemic had reshaped their industry for the worse – something which will have seen some turn to purchasing other companies in an attempt to pivot their business offering. Meanwhile, 15% said the pandemic had accelerated existing trends in their sector – and to respond to this quickly, some have turned to purchasing firms with ready-made capabilities that can respond to these trends.

Ivermee added, “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.” 

Looking beyond the pandemic, many CEOs also see M&A activity as an important part of their response to a host of other pressures. For example, UK CEO responses indicated that environmental, social and governance (ESG) was now an integral part of corporate strategy, which cuts across every aspect of decision-making.

UK CEOs are giving this topic even sharper attention than their global peers, with 98% of UK CEOs expecting ESG to be an important value driver, compared with 83% globally. Its strategic importance means 7% of UK CEOs have walked away from a deal because they have ESG concerns.

Globally, however, sustainability was only seen as the second most important factor posing risks to growth. Instead, rising geopolitical tensions, trade conflicts and sanctions were seen as a greater threat to future growth, by 18% of CEOs.

In the case of the UK, almost every CEO Britain speaking to EY reported an increase in costs and the need to adjust their supply chain in response to disruption and geopolitical challenges. As a result, over 88% of companies are altering their supply chains or geographical profile - with over a third of UK CEOs accelerating cross-border investment.