October th edition. Global Capital Confidence Barometer Chile

Transcription

1 October th edition Global Capital Confidence Barometer Chile

2 About the Barometer EY s Capital Confidence Barometer is a regular survey of senior executives from large companies around the world conducted by the Economist Intelligence Unit (EIU). The respondent community is comprised of an independent EIU panel of senior executives and select EY clients and contacts. Our 13th Barometer provides a snapshot of our findings, gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agenda. EIU panel of more than 1600 executives surveyed in August and September executives from Chile Companies from 53 countries Respondents from 19 industry sectors 863 CEO, CFO and other C-level executives Page 2

3 Macroeconomic environment

4 Executives show resilience in the face of shortterm macro volatility What is your perspective on the state of the global economy today? 7% 1% 3% 9% 3% 3% 12% 22% 36% Oct-15 25% 10% Apr-15 27% 15% Oct-14 23% 33% Oct-15 Apr-15 Oct-14 44% 41% 52% 28% 61% 40% 47% 30% Strongly improving Modestly improving Stable Modestly declining Strongly declining Globally, executives show resilience about the macro economy even in the face of short-term macro volatility. While downside risks to the global economy still exist, executives express overwhelming confidence that conditions are improving. Chilean executives are significantly less positive than their global counterparts. Page 4

5 Chilean respondents see the domestic economy as stable to modestly declining What is your perspective on the state of the local economy today? Oct-14 Apr-15 Oct-15 3% 13% 7% 20% 19% 11% 31% 20% 21% 20% 28% 42% 32% 33% Strongly improving Modestly improving Stable Modestly declining Strongly declining Strong optimism has disappeared. Page 5

6 Globally, corporate earnings and other leading market indicators remain positive Please indicate your level of confidence in the following at the global level: % of positive attitude Credit availability 73% 72% 58% Credit availability 50% 51% 41% Short-term market stability 71% 69% 64% Equity valuations/stock market outlook 47% 60% 31% Corporate earnings 70% 72% 77% Short-term market stability 44% 27% 39% Equity valuations/stock market outlook 54% 51% 54% Corporate earnings 34% 57% 64% Oct-15 Apr-15 Oct-14 For most companies, 2015 earnings have exceeded analyst expectations, corroborating executive sentiment given recent currency fluctuations, stability in earnings sentiment is positive overall. Looking beyond recent short-term market volatility, executives are taking a more robust view of capital markets. Chilean executives have significantly decreased their confidence in equity valuations and corporate earnings. Page 6

7 Chilean executives see domestic market indicators as stable to declining Please indicate your level of confidence in the following at the local level: Corporate earnings Short-term market stability oct-15 33% 45% 22% oct-15 17% 41% 42% abr-15 30% 60% 10% abr-15 43% 37% 20% oct-14 51% 26% 23% oct-14 54% 10% 36% Equity valuations Credit availability oct-15 39% 30% 31% oct-15 36% 28% 36% abr-15 54% 33% 13% abr-15 53% 40% 7% oct-14 41% 38% 21% oct-14 54% 31% 15% Improving Stable Declining The percentage of respondents seeing the domestic indicators as declining has increased significantly. Page 7

8 Currency and commodity volatility concerns persist as major economic risks What do you believe to be the greatest economic risk to your business over the next 6 12 months? Increased global and regional political instability 29% Increased volatility in commodities and currencies 47% Increased volatility in commodities and currencies 24% Slowing growth in key emerging markets 25% Economic and political situation in the eurozone 23% Increased global and regional political instability Slowing growth in key emerging markets 18% Economic and political situation in the eurozone Timing and pace of interest rate rises in the US 6% Timing and pace of interest rate rises in the US 0% Continuing geopolitical issues in Eastern Europe, the Middle East and Southeast Asia cause the greatest concern around economic risk. Concerns around the stability of the eurozone are becoming more prominent. Ongoing high volatility in commodities and currencies continues to challenge companies long-term planning. In Chile, this volatility in commodities and currencies is a concern given the significant effect the price of copper has in the local economy. Page 8

9 Corporate strategy

10 Globalization having greater impact on core and acquisition strategies Which of the following will impact your core business and your acquisition strategy most in the next 12 months? Digital future: Technology is disrupting all areas of enterprise, driving myriad opportunities and challenges Entrepreneurship rising: Entrepreneurship around the world is growing, driving the need for more supportive ecosystems Global marketplace: Economic power continues to shift east and south, driving new patterns of trade and investment Health reimagined: Technology and demographics converge to drive a once-in-a-lifetime transformation of health services and provision Resourceful planet: Growing demand and shifting supply are driving innovation in the energy and resources space Urban world: Effective infrastructure investment and sound planning will make future cities competitive and resilient 20% 23% 26% 15% 32% 24% 9% 13% 8% 11% 5% 11% 11% 8% 31% 26% 8% 22% 22% 19% Core business Acquisition strategy Globally, technology including the convergence of social, mobile, cloud and big data, and growing demand for anytime anywhere access is disrupting all areas of the enterprise, across industries and geographies In the near term, the growth in economic influence of China, India and the wider Asian economy is expected to have the greatest impact on core business and acquisition strategies, both Globally and for Chilean respondents. Page 10

11 Low-growth environment compelling executives to maintain rigorous cost discipline Which of the following has been elevated on your boardroom agenda during the past six months? Increased volatility in commodities and currencies 40% Reducing costs/improving margins 43% Reducing costs/improving margins 21% Portfolio analysis, including strategic divestment (spinoff/ipo) 17% Portfolio analysis, including strategic divestment (spin-off/ipo) 21% Increased volatility in commodities and currencies Regulatory and competition/antitrust oversight 7% Acquisitions Acquisitions 5% Cybersecurity 6% Cybersecurity 4% Shareholder activism, including returning cash to shareholders 3% Shareholder activism, including returning cash to shareholders 2% Regulatory and competition/antitrust oversight 3% Globally and in Chile, short-term focus on costs is exacerbated by greater currency volatility and fluctuations in commodity pricing induced by the oncoming expectations on economy and regulatory changes. Strategic divestment and other portfolio strategies moving higher on the boardroom agenda thanks to ongoing focus on shareholder activism as well as redeployment of capital in a fast-changing world. Page 11

12 Chilean companies look to retain workforce With regards to employment, which of the following does your organization expect to do in the next 12 months? 6% 22% 49% 41% 7% 52% 45% Oct-15 Oct-14 46% 13% 41% Oct-15 Oct-14 64% Create jobs/hire talent Keep current workforce size Reduce workforce numbers Positive global economic outlook is driving most global companies to retain or grow their workforce. Strong US and UK employment growth, and an improving eurozone, validate companies drive for talent. This Barometer shows corporate emphasis on digital evolution can coexist with positive sentiment on job creation. In Chile, employers expectation to retain their workforce most likely driven by the lack of human resources. Page 12

13 Chilean executives focus on operational efficiency Which statement best describes your organization s focus over the next 12 months? oct-15 33% 56% 11% oct-15 30% 56% abr-15 31% 54% 1% abr-15 36% 54% 10% oct-14 49% 35% 15% 1% oct-14 24% 55% 18% 3% Growth Cost reduction and operational efficiency Maintain stability Survival Focus on cost is exacerbated by short-term pressure from commodities and currency fluctuations. Globally, clear shift over last two years from growth to cost reduction and operational efficiency is likely influenced by companies consolidating prior revenue growth, especially from acquisition. Page 13

14 Increased R&D and innovative technologies seen as key routes to organic growth What is the primary focus of your company s organic growth over the next 12 months? Increase research and development/product introductions Exploiting technology to develop new markets/products Investing in new geographies/markets Changing mix of existing products and services Innovative 0% 3% 6% 8% 9% 12% 16% Conventional 22% 25% 32% 30% Increase research and development/product introductions Exploiting technology to develop new markets/products Investing in new geographies/markets Changing mix of existing products and services Innovative 0% 0% 0% 0% 0% 13% 25% 22% 24% 22% 20% 11% Conventional More rigorous focus on core products/existing markets New sales channels 23% 23% 6% 17% 40% More rigorous focus on core products/existing markets New sales channels 13% 11% 25% 40% 34% 40% Oct-15 Oct-14 Oct-13 The focus on core operations is still a key driver but after several years of emphasis, companies may find the core can no longer deliver growth and just supports earnings. In the Chilean environment, interest has clearly shifted from conventional growth to innovative, probably driven by the decrease of margins in the conventional businesses. Page 14

15 Companies considering the full range of opportunities for allocating available capital What percentage of available capital will you allocate to each of the following? Improve the companys balance sheet by reducing debt 30% Improve the companys balance sheet by reducing debt 33% Organic growth (e.g., investing in products, talent retention, research and development) 28% Organic growth (e.g., investing in products, talent retention, research and development) 29% Inorganic growth (e.g., acquisitions, alliances and JVs) 27% Inorganic growth (e.g., acquisitions, alliances and JVs) 24% Returning cash to shareholders 15% Returning cash to shareholders Companies take a balanced approach to capital allocation, with Chilean companies slightly more focused on improving balance sheets and reducing debt. Companies with the most active capital allocation processes are consistently shown to outperform those with more passive or infrequent allocation approaches. Page 15

16 Executives consider both core and new elements as they commit resources to organic growth What percentage of available resources do you plan to spend on each aspect of organic growth over the next 12 months? Time resources Capital resources 17% 17% 26% 57% 27% 56% Focus on core products/existing markets around efficiencies Evolving core products and services Entirely new products and services/true innovation By combining the results for evolution in the core and entirely new products and services, we see a balance between resources committed to maintaining core resources (56.5%) and pursuing change (43.5%). While new products and services are, as expected, the smallest emphasis, the breakdown here is more tilted toward innovation than the typical organic growth split evidence of executives becoming bolder. Page 16

17 Executives consider both core and new elements as they commit resources to organic growth What percentage of available resources do you plan to spend on each aspect of organic growth over the next 12 months? Time resources Capital resources 19% 20% 22% 59% 22% 58% Focus on core products/existing markets around efficiencies Evolving core products and services Entirely new products and services/true innovation The majority of Chilean executives are focused on core products and existing markets. Page 17

18 M&A outlook

19 Long-term global M&A shows value returns to precrisis high, but volume subdued SUPPLEMENTAL MARKET DATA ANALYSIS US$m Global Financial Crisis Eurozone Debt Crisis * Value (US$m) Volume Source: Dealogic *2015 M&A extrapolated from January September 2015 run-rate; 2015 GDP is an estimate The vast majority of executives predict the global M&A market will thrive in the next 12 months. This sentiment is driven by executives positive outlook regarding the global economy and their resilience in the face of a persistently low-growth environment. Global M&A is expected to remain firm in the face of short-term market volatility. Page 19

20 Strong relationship between M&A and GDP, but current ration shows ample headroom for more deals SUPPLEMENTAL MARKET DATA ANALYSIS 8% 7% 6% 5% 4% 3% 2% Global Financial Crisis Eurozone Debt Crisis * Source: Dealogic, Oxford Economics 7 EY analysis Value (US$m) 2015 M&A extrapolated from January September 2015 run-rate M&A value as a % of GDP EY analysis shows a strong relationship between M&A values and gross domestic product and finds that there is headroom in this current cycle. That is particularly true if the eurozone returns to previous levels of dealmaking and China fulfils its potential. Executives are able to see beyond near-term volatility, and this deal market still has some way to run. Page 20

21 Continued strength of global M&A underpins increasingly positive deal market sentiment What is your expectation for the M&A market in the next 12 months? - Global 83% 39% Improving 60% Improving 36% 69% 60% 15% 47% Stable 39% Stable 61% 26% 34% Declining 2% 1% 5% Declining 3% 6% Oct-15 Oct-14 Oct-13 The vast majority of executives see the global M&A market remaining strong in , with increased positive dealmaking sentiment supported by 2015 s heightened M&A activity. Globally, positive market sentiment is accelerating, with a prominent shift from stable to improving in the past six months. Chilean respondents view the global M&A market as stable. Page 21

22 Chilean executives see domestic M&A as stable What is your expectation for the M&A market in the next 12 months? - local 25% Improving 38% 53% 61% Stable 47% 38% Declining 9% 15% Oct-15 Oct-14 Oct-13 Chilean executives shift local M&A market expectations from improving to stable in the past six months.. Page 22

23 Global deal intentions continue to increase, driven by strong improvement in deal fundamentals Do you expect your company to actively pursue acquisitions in the next 12 months? Expectations to pursue an acquisition Likelihood of closing acquisitions % of positive attitude 57% 37% 44% 42% 44% 34% 43% 35% 31% 44% 40% 56% 59% 43% 44% Quality of acquisition opportunities 46% 69% 51% 55% 47% 41% 16% oct-13 abr-14 oct-14 abr-15 oct-15 Number of acquisition opportunities 76% 69% 58% 47% 47% 43% Oct-15 Apr-15 Oct-14 44% of Chilean executives expect to pursue an acquisition in the next year. Globally, plans to pursue acquisitions continue their uptick after a strong increase six months ago and remain well above the Barometer s long-term average backed by increasingly positive deal fundamentals. Page 23

24 Confidence in deal fundamentals hold steady Please indicate your level of confidence in the following at the local level: % respondents positive Likelihood of closing acquisitions 34% 37% 50% Quality of acquisition opportunities 27% 30% 39% Number of acquisition opportunities 49% 51% 52% Oct-15 Apr-15 Oct-14 Chilean executives have increased confidence in the likelihood of closing deals. Page 24

25 Globally, upper middle market deal plans increase What is your largest planned deal size in the next 12 months? 3% 26% 2% 21% 5% Oct-15 Apr-15 Oct-14 13% 23% 6% 12% 19% Oct-15 Apr-15 81% 82% Oct-14 71% 77% 68% 77% Greater than US$1b US$251m US$1b US$0 US$250m While the majority of investments are expected in the lower middle market, the global trend since 2014 has been toward more substantial deal sizes. Upper-middle-market deals between US$250m and US$1b now make up more than a quarter of planned M&A. While the majority of Chilean dealmakers are focused on lower-middle market deals, the percentage of respondents that expect to close larger deals is very significant. *Based on Dealogic data January to September vs. January to September 14 Page 25

26 Executives swing toward bolt-on acquisitions as companies consolidate to secure market share Your planned M&A activity will mostly be: 7% 13% 16% 31% 56% 77% Bolt-on (complement current business model) Innovative investment (shifts scope of your business could be into another industry sector) Transformative (high value acquisition which significantly changes the size and scale of your company) Companies are using bolt-on acquisitions to control costs and improve efficiencies amid a low-growth environment. Highly active M&A markets are not necessarily dominated by innovative or transformative deals positive M&A sentiment can ultimately generate more sector-consolidating deals. Page 26

27 Growth in deal pipeline size corresponds with improved dealmaking sentiment How many deals of all sizes do you have in your pipeline today? >=5 12% 11% 23% >=5 25% 35% 50% 4 13% 7% 8% 4 0% 0% 18% 3 16% 13% 30% 3 8% 12% 25% 2 33% 38% 30% 2 31% 25% 29% 1 12% 28% 26% 1 6% 19% 17% Oct-15 Apr-15 Oct-14 Globally, there has been a movement to larger deal pipeline sizes: Upper categories are all up from six months ago, and three- and four-deal pipelines are up strongly from a year ago, driven by positive M&A fundamentals. In Chile more than 50% of the respondents have 3 or more deals in their pipeline today. Two- and three-deal pipelines show the strongest growth among Chilean respondents. Page 27

28 Growth in deal pipeline size corresponds with improved dealmaking sentiment How do you expect your deal pipeline to change over the next 12 months? oct-15 35% 63% 2% oct-15 25% 69% 6% abr-15 44% 23% 33% abr-15 23% 38% 39% oct-14 66% 29% 5% oct-14 53% 35% 12% Increase No change Decrease The majority of Chilean executives expect deal pipeline to remain the same. Globally, a majority of companies expect no change in deal pipelines, likely due to already-robust pipeline activity but nearly all respondents expect either growth or stability in the number of assets being assessed. Page 28

29 Companies expect to complete a similar amount or more deals than a year ago How many acquisitions do you expect to complete in the next 12 months? >=5 7% 7% >=5 19% 31% 4 5% 4% 4 6% 8% 3 11% 10% 3 0% 8% 2 25% 36% 2 23% 31% 1 43% 52% 1 30% 44% Oct-15 Apr-15 The majority of Chilean dealmakers plan to complete one or two deals in the next year. There is a majority of executives who expect M&A will continue at similar level for most dealmakers. Page 29

30 Companies expect to complete a similar amount or more deals than a year ago Is this more or less than the number of acquisitions you completed in the prior 12 months? 4% 3% 47% 27% Oct-15 Apr-15 19% 8% 38% 19% Oct-15 Apr-15 50% 54% 69% 62% More The same Less There is a majority of executives who expect M&A will continue at similar level for most dealmakers. Page 30

31 Manageable valuation gap supports continued dealmaking How do you think that buyers expectations currently compare to seller s (valuation gap)? 1% 35% 39% 2% 6% 15% Oct-15 Apr-15 11% 13% 17% 11% 25% Oct-15 Apr-15 53% 37% 33% 49% 53% Significantly higher (25% or more) Somewhat higher (10%-25% gap) The gap is small (<10%) No gap Globally, executives see current high valuations and may deter some dealmaking, overall view of stability should offset downside risk. Recent equity correction seen as temporary by most executives asset prices will likely revert to previous levels. The majority of Chilean executives believe the valuation gap is small or non-existent. Page 31

32 Manageable valuation gap supports continued dealmaking Do you expect the valuation gap between buyers and sellers in the next 12 months to: 4% 19% 11% 4% 18% 35% Oct-15 Apr-15 7% 7% Oct-15 Apr-15 61% 78% 86% 70% Widen Stay the same Contract Well over half of the global and 70% of Chilean dealmakers expect valuations to remain the same continuing the very small valuation gap. Page 32

33 Manageable valuation gap supports continued dealmaking What do you expect the price/valuation of assets to do over the next 12 months? 5% 11% 5% 28% Oct-15 17% 39% Oct-15 Apr-15 20% Apr-15 56% 78% 80% 61% Increase Remain at current levels Decrease The majority of Chilean dealmakers expect pricing to remain at current levels or even decrease, which should drive excellent buying opportunities during the next 12 months. Page 33

34 Strengthening market position driving M&A strategy in the near term What are the main drivers affecting your M&A strategy over the next 12 months? Gain market share in existing geographical markets 32% Gain market share in existing geographical markets 36% Improve structural tax efficiencies 19% Move into new product/services areas 22% Move into new product/services areas Reduce costs, improve margins 17% Move into new geographical markets 10% Move into new geographical markets 8% Acquire talent 9% Acquire talent 8% Access new technology/intellectual property Reduce costs, improve margins 9% 7% Improve structural tax efficiencies Access new technology/intellectual property 0% 8% Low economic growth is driving consolidation across many sectors and geographies. Combination of new products/services and new geographical markets accounts for 30% of planned M&A in Chile. Page 34

35 A wide range of factors challenging companies M&A strategy What are the main challenges to your M&A strategy over the next 12 months? Buyer competition (including valuation gap between buyers and sellers) Adverse political environment Adverse economic environment Deal execution and integration capabilities (including lack of internal resources/managerial focus) Insufficient opportunities/suitable targets Funding availability Regulatory or antitrust environment Uncertain tax environment 0% 2% 5% 21% 23% Buyer competition, as more companies have returned to dealmaking, has become the primary challenge to M&A strategy. Adverse political or economic conditions are also proving troublesome, which reflects the earlier findings that geopolitical issues are an increasing concern. In the Chilean marketplace, the regulatory environment appears to challenge the M&A strategies of Chilean respondents more than global. 8% 11% 11% 11% 11% 16% 15% 19% 19% Global Chile Page 35

36 Executives willingness to walk away from deals underscores overall health of M&A market If you have either failed to complete or canceled a planned acquisition in the past 12 months, what was the primary reason? We have canceled or failed to complete a planned acquisition 73% 75% Competition from other buyers Concerns about regulatory or antitrust reviews 33% 29% 29% 19% Gap between buyer and seller expectations too wide 21% 29% We have not canceled or failed to complete a planned acquisition 27% 25% Investor or board scrutiny 12% 23% Issues uncovered during due diligence 5% 0% Global Chile The high number of failed or pulled deals, coupled with fuller pipelines, is evidence of an M&A market in which companies evaluate deals carefully and are willing to walk away. Chilean executives see buyer competition and the gap between buyers and sellers as the top causes of failed or pulled M&A. Page 36

37 Convergence and blurring of sectors spurring companies to consider cross-sector M&A If you are planning an acquisition in a sector other than your own, please indicate which sector? I am not planning an acquisition outside of my own sector, 50% I am planning to do an acquisition outside of my own sector, 50% I am planning an acquisition outside of my own sector I am not planning an acquisition outside of my own sector 48% 50% 52% 50% Technology, 19% Government & public sector, 13% Logistics & distribution, 6% Medical technology (eg, devices, diagnostics), 6% Other, 6% Global Chile Companies considering an acquisition outside of their sector may also be evaluating deals within their sector. Disruptive megatrends are blurring traditional boundaries between sectors, particularly around technology and industrial processes. Page 37

38 Purchase price is major roadblock to deal success in Chile For acquisitions completed recently, what was the most significant issue that contributed to deals not meeting expectations? Poor operating cost assumptions 21% Strategic value overestimated/purchase price 26% Poor execution of integration 21% Sales volume declines/loss of customers 20% Product/sales price and margin deterioration 17% Poor operating cost assumptions 20% Failure to achieve synergies 15% Product/sales price and margin deterioration 17% Sales volume declines/loss of customers 12% Failure to achieve synergies 11% Strategic value overestimated/purchase price multiple too high Unforeseen liabilities (tax, HR, pension etc. ) 11% 3% Poor execution of integration Unforeseen liabilities (tax, HR, pension etc. ) 6% 0% Globally, companies are increasingly buying businesses outside of their core competencies in response to shifting consumer preferences, technological advances and blurring of sector lines. As a result they are often acquiring assets that may be difficult to fit into their current operations. From a Chilean perspective, companies will need to work more to determine the value of the purchased asset. Page 38

39 Top five sectors With highest intention to pursue acquisitions All sectors with at least 5 respondents Oil and gas 69% Power and utilities 57% Mining and metals 67% Diversified industrial products 50% Consumer products and retail 67% Chile 44% Diversified industrial products 66% Automotive and transportation Power and utilities 65% - Global average 59% - Locally, the apparent need of more and new sources of power is moving investors to expect to close deals in the power business. Huge interest in renewable and clean sources of power is seen in the Chilean marketplace. Page 39

40 Range of drivers influencing companies to purse acquisitions outside of their own sector What is the main strategic driver for pursuing an acquisition outside your own sector? Access to new materials or production technologies 36% Access to new materials or production technologies 25% Changes in customer behavior 29% New product innovation 25% Reacting to competition 17% Reacting to competition 24% New product innovation 15% Technology and digitalization 13% Technology and digitalization 3% Changes in customer behavior 13% Half of Chilean respondents pursue deals outside of their own sector to access new material or new product innovation. Changes in customer behavior and similar moves by competition are changing competitive dynamics within sectors, forcing companies to use M&A as a mechanism to protect market share. Page 40

41 Among disruptive core-business challenges, convergence and regulation pose greatest risk From where do you see the most disruption to your core business in the next 12 months? Increasing globalization 21% Sector convergence/increase competition from companies in other sectors 25% Industry regulation 20% Industry regulation 22% Sector convergence/increase competition from companies in other sectors 16% Changing customer behavior and expectations 22% Changing customer behavior and expectations 16% Product innovation Product innovation Advances in technology and digitalization 8% Advances in technology and digitalization 12% Increasing globalization 6% Other 1% Other 3% Globally, the lack of an outstanding single disruptive force points to the myriad challenges buffeting businesses across sectors and geographies. Added together, product innovation and digitalization total 22% for Chilean respondents a reflection of how technological forces are affecting core business. Local stretching of margins strengthens competition at the time when Chilean investors need to deal with new regulations. Page 41

42 Chilean companies focused on domestic area for acquisition targets Where is the main focus of your M&A strategy over the next year? 30% 25% 41% 50% 29% 25% Outside domestic market/immediate region Immediate region (countries close to home) Domestic market (home country) are pursuing a more even geographic split for M&A. The majority of Chilean executives see deals within the immediate region. Page 42

43 Companies taking advantage of attractive asset pricing in emerging markets What percentage of your acquisition capital are you going to allocate to the emerging markets in the next 12 months? Above 50% 3% 3% Above 50% 15% 25% 25%-50% 1% 9% 25%-50% 6% 8% 10%-25% 29% 31% 10%-25% 15% 25% Less than 10% 53% 61% Less than 10% 38% 54% None 6% 4% None 6% 8% Oct-15 Apr-15 More than half of Chilean respondents plan to allocate at least 10% of their acquisition capital to emerging markets. Recent currency swings against emerging markets and lower equity valuations have made assets more attractive. Page 43

44 Chilean investment destinations concentrated in Americas Which are the top destinations your company is most likely to invest in the next 12 months? Canada US Top destinations Global US UK China India Germany Chile Chile US Canada Argentina Colombia Chile Colombia Argentina Top 5 destination countries Globally, strong growth in high-quality assets in the US and the UK making them popular destinations for investment. Major Asia Pacific countries are still proving attractive for investments. As in the past, Chilean investors are interested in Colombia, US and Chile. New interest appears in Argentina and Canada. Page 44

45 Eurozone investment appetite stable, and in some cases increased Has your intention to acquire assets in the Eurozone altered due to recent political events and changes in monetary and economic policy? 5% 6% 26% 25% 13% 6% 63% 56% Increased Stayed the same Decreased Not relevant/ no plans to invest in eurozone More than half of Chilean respondents have seen no change in Eurozone investing plans. Globally, more than a quarter of executives have increased plans to acquire assets in the Eurozone, fueled in part by pent-up demand and attractive pricing after an extended period of instability. Page 45

46 Within the deal process, digital technology has had greatest impact on post-merger integration What part of your deal process has been most affected by advances in digital technology? Post-merger integration 40% Post-merger integration 44% Due diligence (including analytics, big data, digital and social media diligence) 34% There has been no impact 39% Sourcing and selecting opportunities 17% Sourcing and selecting opportunities 11% There has been no impact 9% Due diligence (including analytics, big data, digital and social media diligence) 6% More than ever, digital technology influences what companies acquire, how they integrate, and how they monitor and measure success. Digital technology accelerates the integration timeline and therefore the ROI of the acquired business, while newer technologies such as cloud computing significantly reduce integration timelines. Page 46

47 The vast majority of executives see measurable deal process risk from cyber-attack What is your assessment of the current risk of a potential cyber attack/breach of your deal process? 8% 19% 22% 50% 42% 59% High Medium Low More than 80% of Chilean executives view cybersecurity as a significant risk medium or high to their deal process. Heightened media attention and increased corporate awareness of cyber-risk are contributing to watchfulness at the C-suite/Board level. Page 47

48 and a majority perform cybersecurity due diligence as a matter of course Do you perform cybersecurity due diligence on your transactions? If so, at what time in the process is the due diligence performed? If so, what type of due diligence is performed? Select all that apply 11% 11% Customers agreements/ system interfaces 89% 11% 45% 39% 50% Supply chain agreements/ system interfaces 86% 33% IT systems 64% Always Sometimes Don t know Never Between signing and closing As part of the core diligence process Just prior to announcement JV/affiliates 54% Cybersecurity involves not only the deal process but also the target itself and corporate vigilance is increasing, end to end. Almost half of Chilean companies regard cybersecurity as a core part of the due diligence process. Page 48

49 Survey demographics

50 Survey demographics What are your company s annual global revenues in US$? What is your position in the organization? $5bn or more $3bn to $5bn 11% 26% Head of BU/dept. 15% $1bn to $3bn $500m to $1bn 24% 25% SVP/VP/ Director 33% C-level executive 52% $250m to $500m What best describes your company ownership? Government/stateowned enterprise 2% Publicly listed 65% Privately owned 31% Family-owned 2% Page 50

51 Survey demographics What are your company s annual global revenues in US$? What is your position in the organization? $5b or more $3bn to $5bn 30% Head of BU/dept. $1bn to $3bn $500m to $1bn $250m to $500m 22% SVP/VP/D irector 19% C-level executive 67% Less than $250m 6% What best describes your company ownership? Family-owned 8% Publicly listed 56% Privately owned 33% Private equity portfolio company; 3% Page 51

52 Proportion of top industries represented Diversified industrial products Automotive and transportation Consumer products and retail Power and utilities Automotive and transportation Diversified industrial products Technology Mining and metals Life sciences Agriculture based Financial services Consumer products and retail Oil and gas Construction Power and utilities Telecommunications Real estate Technology Telecommunications Other Page 52

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