Over half of CEOs to step-up investment and M&A in 2022, but headwinds remain

As the world enters a new phase in the global COVID-19 pandemic, the majority of CEOs are ready to accelerate plans for investment and mergers and acquisitions (M&A) in their pursuit for growth. These findings come from the inaugural EY 2022 CEO Outlook Survey, which recorded the views of more than 2,000 CEOs across the globe on their prospects, challenges and opportunities.

More than half of respondents (54%) will prioritize investment in existing businesses, digital transformation and sustainability, according to the survey. In addition, more than three-quarters (79%) of respondents have adjusted, or are planning to adjust, their supply chain to help reduce costs and minimize risks to prepare for future disruption.

Following a record year that saw US$5t worth of M&A, transactions will remain a critical tool for CEOs in 2022 complementing other areas of investment. Nearly two-thirds (59%) of respondents expect their companies to pursue acquisitions in the next 12 months — up from 48% at the start of 2021.

Peter Latos, Partner, Consulting, Strategy and Transactions Leader, EY Romania: “We expect to see the pace of Romanian M&A accelerate even further in 2022 as CEOs continue to seek opportunities to accelerate the transformation of their business and consolidate market positions. However, with competition for good quality assets increasing, seller’s price expectations are rising and it will be important for CEOs to maintain a rigorous approach to investment appraisal decisions given inflationary headwinds in the form of higher energy, wage, raw material costs, and interest rates, not to mention the ongoing disruption to supply chains caused by the pandemic.”

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CEO investment plans, however, could be thrown off course due to external risks to their business. A majority of the surveyed CEOs (87%) appear worried about rising input prices and identify trade tensions (18%), the impact of climate change (17%) and increasing competition from challengers (13%) as the most critical risks to the future growth of their businesses.

What’s the outlook for M&A in 2022?

In the next 12 months, CEOs will be prioritizing deals that will improve operational capabilities (26%), and their environmental, social and governance (ESG) positioning and sustainability footprint (20%), according to the survey.

The US, the UK, China, India and Germany are the most favored destinations for those CEOs looking to pursue an acquisition in 2022. Looking at sectors, technology, health care and advanced manufacturing are the top three sectors more likely to buy assets.

Asked to identify the top trends in the M&A market in 2022, responding CEOs said that they expect an increase in hostile and competitive bidding (72%), private equity to be a major acquirer (70%), an increase in cross-sector (68%) and cross-border (65%) dealmaking, as well as more megadeals (56%).

ESG and sustainability concerns are becoming more important for dealmakers, according to the survey. An overwhelming 99% of responding CEOs say they factor these issues into their buying strategies, while 6% of respondents say they have walked away from deals in the past year, due to ESG related concerns about the target.

Cost of focus on sustainability creates CEO tension with some investors

In a further sign that the pivot toward sustainable transformation among CEOs is becoming a permanent shift in the post-COP26 world, while revenue growth remains a key driver, over three-quarters of respondents (82%) identified ESG factors as extremely important or important, when it comes to strategic decision-making. In addition, 28% of respondents can clearly see the competitive advantage of becoming a leader in sustainability.

At the same time, however, 65% of respondents admit that they have encountered resistance from investors and shareholders about their sustainability transition strategy; and almost a quarter (21%) say that investors are not showing support for long-term investment plans, or that they are fixated on quarterly earnings.