M&A appetite falls amid Brexit, US-China trade fears, EY says

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President Donald Trump takes part in a welcoming ceremony with China’s President Xi Jinping on November 9, 2017 in Beijing, China. Trump is on a 10-day trip to Asia. 

Companies’ appetite for mergers and acquisitions has fallen to a four-year low, with investment pressured by worries over Brexit and the U.S.-China trade battle, according to a study released on Monday.

Less than half — 46 percent — of global executives plan to buy other firms in the next 12 months, a 10 percent decline from the previous year, EY said in its biannual “Global Capital Confidence Barometer” report.

The consultancy said that 46 percent of respondents to a survey of more than 2,600 executives across 45 countries also said they saw regulation and geopolitical uncertainty as the biggest risk to dealmaking activity over the next year.

“Geopolitical, trade and tariff uncertainties have finally caused some dealmakers to hit the pause button,” Steve Krouskos, global vice chair of EY’s transaction advisory services team, said in a statement.

“Despite stronger-than-anticipated first-half earnings and the undeniable strategic imperative for deals, we can expect this year to finish with much weaker M&A than how it started.”

This year has been a notable one in terms of so-called mega deals. German pharmaceutical giant Bayer closed its $63 billion deal to buy U.S. agriculture firm Monsanto earlier this year and American media titans Disney and Comcast became enwrapped in a high-profile bidding war that saw Disney agree to buy Twenty-First Century Fox for $71.3 billion and Comcast offering $40 billion for British rival Sky.

The EY report said that, though M&A activity had soured somewhat on political uncertainties, fundamentals remained robust, with 90 percent of company executives expecting the market to improve.

Only 9 percent of respondents to its survey said they expected the M&A market to improve in the next 12 months, however EY said that the current situation was likely just a “pause.”

“The good news is that companies will likely take the break in action as an opportunity to focus on integrating the many deals undertaken over the past 12 months,” said EY’s Krouskos. “This is likely to be just a pause, not a complete stop. Fundamentals and the strategic rationale for deals remain strong, and the appetite to acquire will likely grow toward the second half of 2019.”