Companies’ appetite for M&A is reflected in how they are now prioritising the use of the capital on their balance sheets. The percentage prioritising the use of capital for M&A has increased significantly in the last three years.
While capital investment was a clear priority for businesses three years ago, it is now cited as most important by only 38% of respondents compared to those who are focused on M&A (45%), a significant increase on three years ago (36%). Using capital to boost shareholder returns – through share buybacks or special dividends, for example – lags some way behind.
For many companies, it’s a question of how to deliver shareholder value over the longer term. “Of course we want to provide our shareholders with higher returns, but we believe acquisitions represent the best way to do that,” says one survey respondent, the director of strategy of a Chinese agricultural company that recently invested in Southeast Asia. “Acquisitions that have improved our capabilities in the past have done exactly that.”
Stephen Wilkinson, global head of M&A, at Herbert Smith Freehills in London, commented: “There has been an acceptance over the last two years that growth and scale through M&A represent a path to shareholder value in a way that wasn’t accepted immediately after the global financial crisis."