11 th Global Capital Confidence Barometer

Transcription

1 11 th Global Capital Confidence Barometer Consumer products companies display renewed optimism to grow October 2014

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 comprises an independent EIU panel of senior executives and select EY clients and contacts. Our 11 th 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 Agendas. Respondent profile EIU panel of more than 1,600 executives surveyed in August and September executives from consumer products and retail Companies from 62 countries Executives from 18 industry sectors 949 CEO, CFO and other C-level executives More than 800 companies Fortune 1000-qualified based on revenues Page 2

3 Talking points Will consumer products (CP) companies confidence to take on debt lead to more intense deal activity in the future? How modest are the valuations of quality targets? How long will the margin focus continue to drive M&A? As M&A action increases in developed/mature markets, are CP companies only looking for smaller emerging market targets? Page 3

4 Confidence in stability revives growth aspirations Increasing confidence despite increased geopolitical risk +1,400 basis points (bps) Stable economy In sync with other sectors, CP companies are finding the economic environment stable in the absence of any major systemic financial shock. #1 risk Increased global political instability #1 trend Future of work impacts strategy Increased global political instability is now the most named economic risk among CP respondents (35% of mentions). Displacing global rebalancing, future of work emerges as the most important trend impacting a CP company s business strategies. Digital transformation is now the most important trend determining acquisition strategies of CP companies. Growth focus returns, but margins remain important +1,400 bps Focus on growth* The number of CP companies focusing on growth increased to 52%, while those struggling for survival have come down to 1% (from 7% six months ago). +2,200 bps Create jobs* 36% Focus on profitability +100 bps Optimizing* A focus on growth and confidence in economic stability will provide a boost to the hiring intentions of CP companies. While CP companies turn optimistic about the growth, they are not losing sight of profitability more than one-third of CP companies continue to describe cost reduction and operational efficiency as their key priority. Fifty-two percent of CP companies name optimizing the highest priority on their Capital Agendas. *Compared to six months ago Page 4

5 Middle-market, efficiency driven M&As set to increase M&A appetite grows as mature markets make a comeback 39% Expect to pursue acquisition CP companies expected to pursue acquisitions over the next year witnessed a sharp increase of 11% over the last six months. Sixty-four percent of CP respondents expect an improvement in the global M&A market. +1,400 bps Number of opportunities* #1 driver Reduce costs, improve margins +1,500 bps Deal size <US$50m* +2,000 bps Increase in debt-to-capital ratio +2,300 bps Mature market acquisitions/ investment Sixty-four percent of CP respondents are confident about the number of acquisition opportunities, which is higher compared to other sectors. Forty-five percent of CP companies name cost reduction and margin improvement as the most important driver for their M&A strategy over the next year. CP companies expect smaller deals compared to six months ago: 52% expect a deal size of less than US$50m; only 5% expect a deal size bigger than US$500m. Healthy balance sheets of CP companies and positive economic outlook will enable them to take on debt to fund growth. More than half of the CP companies expect to make debt-financed acquisitions. There is a significant increase in acquisition strategy/focus on investing in the mature markets. CP companies are now considering all markets equally for potential investments. *Compared to six months ago Page 5

6 Economy increasing confidence in a stable outlook despite some geopolitical risks Page 6

7 CP executives underscore stability of the global economy What is your perspective on the state of the global economy today? 53% 54% Improving 60% Improving 58% 65% 62% 44% 44% Stable 31% Stable 30% 24% 26% Declining 3% 9% 11% Declining 2% 12% 12% Regional/local economic and geopolitical issues may have hit further economic recovery, but businesses are increasingly finding the environment stable in the absence of any major systemic shock. Page 7

8 Emerging markets concerns stabilize What do you believe to be the greatest economic risk to your business over the next 6 12 months? Increased global political instability 37% 30% Increased global political instability 35% 27% The effects of tapering of quantitative easing 25% 21% The effects of tapering of quantitative easing 25% 20% Slowing growth in key emerging markets 15% 26% Pace of structural reforms in Eurozone 18% 15% Pace of structural reforms in Eurozone 14% 14% Slowing growth in key emerging markets 12% 26% Inflation 7% 6% Inflation 8% 8% Deflation 2% 3% Deflation 2% 4% Driven mainly by continuing tensions between Ukraine and Russia, the rapid escalation of the Middle East crisis and protests in Hong Kong, geopolitical concerns take center stage for all businesses. The risk of slower growth in CP emerging markets has come down by more than half over the last six months. China remains resilient, while India witnesses an improving political and economic scenario. CP respondents are showing more concern around tapering of quantitative easing in the US and the pace of reforms in the Eurozone. Page 8

9 Changing work patterns and shifting center of gravity affect CP strategies; digital impacts acquisition strategy Which of the following will impact a) your core business and b) your acquisition strategy most in the next 12 months? Select up to two. 44% 50% Future of work Future of work 38% 36% Rethinking government 34% 27% Global rebalancing 39% 30% Digital transformation 33% 37% Rethinking government 32% 32% Global rebalancing 33% 32% Digital transformation 27% 37% Resourceful planet 27% 26% Resourceful planet 26% 26% Reconfiguring the financial system Cybersecurity 4% 4% 18% 21% Reconfiguring the financial system Cybersecurity 4% 6% 16% 23% Business Acquisition Future of work and global rebalancing are the two biggest trends affecting business behaviors in CP. Digital transformation is the most important trend driving acquisition strategy of CP players. Global rebalancing concerns are higher for the CP players compared to the other sectors. However, the impact of changes in the government is perceived as a lesser concern by the CP players. Page 9

10 Confidence of CP executives is growing across key financial indicators, except on credit availability Please indicate your level of confidence in the following at the global level: % response positive Corporate earnings 43% 77% 65% Corporate earnings 72% 63% 50% Short-term market stability 21% 64% 54% Short-term market stability 25% 61% 49% Credit availability Equity valuations/stock market outlook 29% 58% 54% 48% 54% 49% Equity valuations/stock market outlook Credit availability 55% 48% 33% 47% 56% 52% Corporate earnings were very strong in US in the second half of 2014, with 70% of the S&P 500 beating estimates. However, the Eurozone and UK were mixed, with currency and regional concerns depressing results. CP respondents are generally less confident than respondents from other sectors, except on valuations/stock market outlook. While other indicators show continuous improvement, confidence of CP players in credit availability decreases. Page 10

11 Improving indicators are driving positive hiring intentions of CP companies With regards to employment, which of the following does your organization expect to do in the next 12 months? 7% 41% 52% 5% 45% 50% 17% 52% 31% 17% 55% 28% 11% 41% 48% 9% 48% 43% Reduce workforce numbers Keep current workforce size Create jobs/hire talent With greater clarity of economic outlook, rising corporate earnings and confidence in short-term stability, companies are significantly more optimistic about increasing their workforce. While CP companies continue to focus on costs, they are also planning to reinvest in the business and build the right capabilities. Page 11

12 Growth strategies CP companies are now more growth driven, without losing sight of margins Page 12

13 Survival is no longer a concern, companies are now focused on growth Which statement best describes your organization s focus over the next 12 months? % focused on growth 1% 15% 35% 49% 80% 6% 17% 37% 2% 8% 32% 1% 11% 36% 58% 52% 40% 60% 40% 20% 41% 39% 52% 49% 58% 58% 40% 38% 52% 49% 7% 19% 3% 9% 30% 36% 58% 38% 0% Oct-12 Apr-13 Survival Maintain stability Cost reduction and operational efficiency Growth Consumer products and retail respondents Companies across the sectors are looking to the future while being mindful of lessons learned during the global financial crisis. There is a sharp increase in growth focus, while survival risks have come down. For the first time in the last two years, CP companies are now more growth focused compared to the other sectors. However, they are not wavering from their focus on cost structures and operational efficiencies. Page 13

14 CP companies highlight accelerating need for change What is the primary focus of your company s organic growth over the next 12 months? Changing mix of existing products & services Increase R&D/product introductions Exploiting technology to develop new markets/products Investing in new geographies/markets More rigorous focus on core products/existing markets New sales channels Higher risk 30% 21% 9% 22% 17% 6% 8% 15% 16% 3% 12% 12% Lower risk 23% 24% 40% 14% 11% 17% Changing mix of existing products & services Increase R&D/product introductions Investing in new geographies/markets Exploiting technology to develop new markets/products More rigorous focus on core products/existing markets New sales channels Higher risk 38% 28% 12% 13% 19% 7% 6% 10% 15% 3% 8% 6% Lower risk 10% 11% 20% 30% 24% 40% Evolving consumer preferences are reshaping categories and markets, mandating CP companies to be more agile. The changing mix of existing products and services is increasing significantly at the expense of other risks. R&D focus decreased to 13%, suggesting a cautious approach to innovation. Companies are mindful of the investor preference for a focus on the core. Page 14

15 M&A contribution to growth is decreasing What percentage of your planned growth for the current fiscal year is explicitly assigned to acquisitions? Less than 25% 55% 69% Less than 25% 61% 70% 25% 49.9% 27% 39% 25% 49.9% 28% 37% Greater than 50% 4% 6% Greater than 50% 2% 2% Companies are not planning acquisitions at the expense of organic growth but they expect to do deals that are aligned to their strategy. More than two-thirds (70%) of CP companies are planning for less than 25% of growth assigned to acquisitions. Page 15

16 Continued balance sheet discipline has led to a drop in highly levered CP corporations What is your company s current debt-to-capital ratio? Less than 25% 39% 44% 68% Less than 25% 44% 40% 73% 25% 49.9% 24% 33% 32% 25% 49.9% 21% 33% 43% 50% 74.9% 5% 19% 16% 50% 74.9% 4% 16% 13% 75% 100% 3% 9% 8% 75% 100% 2% 7% 4% Companies are well-placed to withstand any increase in interest rates through the early stages of the impending rate hike. The economic crisis of the past and an ultracautious approach to capital over a long period of time have resulted in an increasing number of CP companies with low levels of leverage. Page 16

17 but they are willing to take on debt to fund growth How do you expect your company s debt-to-capital ratio to change over the next 12 months? 18% 36% 46% 19% 36% 45% 40% 33% 27% 36% 39% 25% 34% 46% 20% 34% 48% 18% Decrease Remain constant Increase As companies move beyond a global financial crisis mindset and look to the future, they are more willing to take on debt. The number of companies looking to de-lever through the next 12 months has dropped by more than half. A significantly greater number of CP companies are planning to use debt to support their growth agendas. A lesser number of CP companies are relying on just using their earnings to grow business. Page 17

18 and make debt-financed acquisitions What is likely to be the main source of your company s deal financing in the next 12 months? Debt 49% Debt 51% Equity 12% Equity 11% Cash 11% Cash 2% Alternate funding 28% Alternate funding 36% Healthy and robust balance sheets will allow deals to be funded through increased leverage. CP companies indicate an increasing willingness to take on debt to finance M&A 10% increase compared to six months ago. Alternate funding avenues are more like to play a role in CP deal financing compared to other sectors. Page 18

19 What is your capital focus? On which of the following capital management issues is your company placing the greatest attention and resources today? 33% 15% 28% 23% 14% 52% 33% 16% 32% 14% 14% 0% 3% 5% The Capital Agenda 50% 52% 46% 29% 0% 51% 4% 50% 5% 31% Page 19

20 Shareholder activism continues to drive margin focus Which of the following has been elevated on your boardroom agenda as a result of shareholder activism? Select up to two. Cost reduction 48% Cost reduction 47% Share buy-back 30% Share buy-back 32% Cash dividend payments 28% Cash dividend payments 29% Strategic divestment 25% Strategic divestment 26% Portfolio analysis 20% Portfolio analysis 18% Spin-off/IPO 14% Spin-off/IPO 15% Acquisition 11% Acquisition 10% Our shareholders have not raised these issues 5% Our shareholders have not raised these issues 5% We do not have shareholders 1% We do not have shareholders 2% The large amount of cash sitting on US non-financial company balance sheets continues to drive shareholder activism. Activist shareholders are reinforcing the disciplined approach to manage costs to improve profitability. Strategic divestments are increasingly driven by shareholder activism. For CP companies, the importance of activist-driven share buy-backs and spin-off/ipos increased significantly over the last six months. Page 20

21 CP companies are proactively identifying areas of potential activist concerns How are you preparing to manage shareholder activism? Ensuring we have open and proactive lines of communication with our shareholders Monitoring early warning signs for activist pressure 19% 24% 23% 22% Conducting an activist audit continue with improvement around cost, efficiencies and performance 17% 20% Conducting ongoing portfolio review to grow revenue, increase margins and optimize value 17% 18% Nothing: we are confident in our current strategy and not actively preparing for activism among our shareholders Making management changes as a result of activist intervention 9% 10% 8% 7% Not applicable 3% 3% Consumer products and retail respondents Companies are learning to engage better with their shareholders and are on the lookout for signs of potential activist pressure. CP companies are ahead of other sectors in managing margins and reviewing portfolios to manage shareholder activism. Page 21

22 M&A acquisition appetite grows as mature markets make a comeback Page 22

23 CP emerges as one of the most active sectors for M&A Global M&A relative performance by sector (Last Twelve Months to August 2014) Many deals, low value High volume Many deals, high value Technology Other sectors Diversified industrial products CP and retail Low value Automotive and transportation Real estate Financial services Media and entertainment High value Govt, public sector Few deals, low value Mining and metals Aerospace and defense Source: Dealogic & EY analysis Excludes real estate asset acquisitions Provider care Power and utilities Low volume Oil and gas Telecommunications Life sciences Few deals, high value Sectors with highest intention to pursue acquisitions in CCB 11 CP and retail is among the sectors showing the biggest appetite for transactions. Total deal value in the CP sector reached a six-year high in 2Q Apart from CP, sectors with high levels of intellectual property, such as technology, life sciences and media and entertainment, have seen a series of large-scale transactions in Page 23

24 CP companies expect the M&A market to improve What is your expectation for the global M&A market in the next 12 months? 60% 64% Improve 58% Improve 54% 69% 66% 39% 35% Stay the same 36% Stay the same 39% 26% 29% Decline 1% 6% 5% Decline 1% 7% 5% The positive performance of the deal markets in 2Q 2014 has helped boost the outlook for M&A. CP deal volumes are also making steady progress 2Q deal volumes increased by 4%. The trend toward improving deals is consistent with the macroeconomic positivity, leading to confidence in future dealmaking. Page 24

25 More than half of CP firms have one or two deals in their pipeline How many deals of all sizes do you have in your pipeline today? >=5 23% 15% >=5 18% 20% 4 8% 10% 4 10% 10% 3 13% 19% 3 14% 19% 2 30% 32% 2 38% 31% 1 26% 24% 1 20% 20% While other sectors witness a shift toward a larger pipeline, CP companies are evaluating select deals. Of CP companies that have deals in their pipeline, 28% have more than three deals in their pipeline. For other sectors, this percentage is 31%. A sharper focus and search for right targets should result in more rigorous deal diligence. Page 25

26 and increasingly expect the pipeline to get busy How do you expect your deal pipeline to change over the next 12 months? Increase 66% Increase 66% 29% 28% No change 29% No change 28% 62% 63% Decrease 5% 9% Decrease 6% 9% Increasing pipelines indicate a pickup in potential M&A momentum in the mid-term. Responses to changing consumer preferences and innovation are likely to prompt increases in the deal pipeline. Bolt-on acquisitions present an attractive opportunity for CP companies. Page 26

27 Number and quality of CP acquisition targets increase Do you expect your company to pursue acquisitions in the next 12 months? 60% 40% 20% Expectations to pursue an acquisition 30% 31% 25% 29% 35% 34% 31% 27% 40% 39% Level of confidence at the global level: Likelihood of closing acquisitions Quality of acquisition opportunities 32% 44% 42% 51% 41% 43% Likelihood of closing acquisitions Quality of acquisition opportunities 41% 30% 38% 52% 44% 45% 0% Oct-12 Apr-13 Consumer products and retail respondents Number of acquisition opportunities 58% 51% 61% Number of acquisition opportunities 64% 50% 56% The desire to pursue acquisitions has rebounded after a dip in early There is significant improvement in expectations of CP companies to pursue an acquisition an increase of 11%. Companies are learning how to transact in a normalized market but within a new regulatory and investor environment. CP companies are more optimistic about the available acquisition opportunities and their quality, but compared to other sectors, they are more conservative in their confidence to close the deals. Page 27

28 CP will witness a strong shift toward middle market, but headroom for large strategic deals still exists What is the maximum single deal value expected over the next 12 months? 4% 4% 50% 31% 10% 5% 52% 36% 7% 1% 23% 30% 20% 15% 12% 37% 30% 13% 6% 14% 27% 31% 23% 14% 5% 38% 32% 17% 9% 4% Less than US$50m US$50m US$249.9m US$250m US$499.9m US$500m US$999.9m Greater than US$1b Companies are more likely to undertake strategic, small-size deals (<US$500m) over the next year. The shift toward the middle market is supportive of the desire to pursue bolt-on acquisitions. However, there is still room for large strategic deals. CP has already witnessed more megadeals compared to all of These include Bayer s purchase of Merck s over-the-counter consumer health care business, Tyson Foods acquisition of Hillshire Brands and the merger of the coffee businesses of D.E. Master Blenders 1753 and Mondelēz International. Page 28

29 Modest valuation gap reflects confidence in CP asset prices How do you think that buyers expectations currently compare to sellers (valuation gap)? Significantly higher (25% or more) 5% Significantly higher (25% or more) 4% Somewhat higher (10-25%) 35% Somewhat higher (10-25%) 35% The gap is small (<10%) 50% The gap is small (<10%) 51% Somewhat lower (10-25%) 8% Somewhat lower (10-25%) 9% Significantly lower (25% or more) 2% Significantly lower (25% or more) 1% An increasing number of CP companies believe that the valuation gap is small, indicating improved motivation to pursue deals and increase in pipeline. A stable economic outlook and better performance also influence valuation perception. A small valuation gap also indicates that the market is not overheated. Page 29

30 and volatility in asset valuations is likely to reduce What do you expect the price/valuation of assets to do over the next 12 months? 33% 30% Increase 45% Increase 41% 42% 43% 59% 62% Remain at current levels 43% Remain at current levels 46% 43% 42% 8% 8% Decrease 12% Decrease 13% 15% 15% Sixty-two percent of CP respondents expect stable valuations over the next year, a significant increase compared to six months ago (46%). It is also much higher compared to respondents expecting an increase in asset prices (30%). As buyers perceive that any newly acquired assets will not lose value in the near- and mid-term, M&A is expected to gain momentum. Page 30

31 but are the right targets available at modest valuations? Do you expect the valuation gap between buyers and sellers in the next 12 months to: 11% 11% Contract 25% Contract 25% 16% 15% 74% 80% Stay the same 55% Stay the same 56% 53% 51% 15% 9% Widen 20% 31% Widen 19% 34% An extremely high number of CP companies (91%) expect valuation gaps to contract or remain the same. Compared to six months ago, there is a big drop in the number of CP companies expecting widening of the valuation gap 9% versus 19%. Stability in valuations allows more productive negotiations on asset sales, but the limited availability of high-quality assets means that companies will have to pay a premium for best assets. Are they willing to do that? Page 31

32 Margin improvement and presence in new geographies drive CP acquisitions What are the main drivers impacting your M&A strategy over the next 12 months? Select up to three. Reduce costs, improve margins Move into new geographical markets Access new technology/intellectual property Improvements to supply chain Move into new product/services areas Gain market share in existing geographical markets Acquire talent Acquire assets at a discount opportunistic M&A Optimize tax efficiencies Navigate regulatory issues Leverage regulatory/legislative opportunities 7% 5% 3% 2% 11% 11% 19% 35% 36% 34% 37% 32% 30% 31% 27% 24% 24% 23% 41% 41% 45% 45% Consumer products and retail respondents Companies are beginning to look at a range of transaction drivers while remaining mindful of cost discipline. Over the past six months, margin improvement displaced expansion in new markets as the most important driver for CP acquisitions. Access to new technology/ip as an acquisition driver for CP companies jumped to 36% (from 6% six months ago). Page 32

33 Desire for market share and margin growth reinforces the importance of core business Are your M&A deals planned in or outside your core sector? We are looking to acquire competitors/similar companies in our core sector 73% We are looking to acquire competitors/similar companies in our core sector 75% We are looking both inside and outside of our core sector 19% We are looking both inside and outside of our core sector 18% We are looking outside of our core sector 8% We are looking outside of our core sector 7% Large multinational CP companies are optimizing their brand portfolios through the disposal of non-core and lower-growth businesses and the acquisition of faster-growing and/or higher-margin businesses. P&G agreed to sell the majority of its pet food business to Mars, while Tyson Foods acquired Hillshire Brands. The stable economic outlook and improving corporate earnings in developed markets also reflect in a more rigorous focus on core products/existing markets. Page 33

34 and bolt-on acquisitions are expected to support the consolidation of core offerings Your planned M&A activity will mostly be: Which statements best describe your M&A plans? Bolt-on (complement current business model) 63% 68% We will focus on growing the core (expanding your core offering into new markets or products) 53% 59% We will do disruptive deals (innovative investment which shifts scope of buying business could be into another industry sector) 23% 26% Transformative (high-value acquisition, which significantly changes the size of acquirer) 32% 37% We will do defensive deals (ensuring assets don t fall into competitor hands) 18% 21% Consumer products and retail respondents Consumer products and retail respondents Companies continue to take less risky options when acquiring assets. However, there is a willingness to make bolder acquisitions when justifiable. While the focus remains on growing the core, CP companies are also more likely to engage in disruptive as well as defensive deals compared to other sectors. Page 34

35 Potential for hostile M&A reflects deal optimism Do you expect to see an increase in hostile/contested M&A in the next 6-12 months? Yes 53% Yes 52% No 47% No 48% EY analysis of external data shows that hostile and unsolicited bids are at pre-crisis levels but not at peak levels. CP companies follow other sectors in their expectation of increased hostile M&A activity. Page 35

36 Companies searching for measured growth mature markets back in the fray How has your acquisition strategy toward/focus on investing in the following markets changed versus 12 months ago? 46% 54% Increase 50% Increase 55% 52% 56% 50% 44% Stayed the same 46% Stayed the same 43% 45% 42% 4% 2% Decrease 4% Decrease 2% 3% 2% Non-BRIC emerging market BRIC emerging market Developed/mature market Compared to a highly polarized scenario in favor of emerging markets six months ago, CP companies indicate considering all the markets for potential investment. Compared to other sectors, CP companies are more likely to increase M&A investments in developed/mature markets. Of the 10 largest acquisitions in 2Q, 8 involved a target company in the developed world. Page 36

37 Investment destinations span top-tier developed and emerging markets Which are the top 5 countries (outside your local market) your company is most likely to invest in the next 12 months? UK US India China Top destinations Global UK CP and retail UK Brazil India India US Brazil China US Brazil China Top 5 destination countries Increasing confidence in the UK and the US make them top destinations for CP investment. China, India and Brazil remain the top three emerging markets slated to garner significant capital allocation. Page 37

38 Infrastructure bottlenecks and geopolitical risks impact CP expansion in emerging markets If you are slowing or stopping your investments into certain markets, to what do you attribute this changing sentiment? Political/regulatory risk in those markets 31% Lack of infrastructure to support growth in those markets 33% Lack of infrastructure to support growth in those markets 27% Political/regulatory risk in those markets 30% Slowing growth 21% Slowing growth 19% Complexity and transparency 11% Currency risk 10% Currency risk 10% Complexity and transparency 8% Underdeveloped infrastructure in emerging markets is the biggest dampener for CP investments in these markets. CP companies continue to focus on long-term market potential and are less concerned by the slowing growth while determining investments. Page 38

39 CP companies highlight lack of capability and resources to execute M&A What are the main challenges to your M&A strategy over the next 12 months? Select up to two. Deal execution and integration capabilities Lack of internal resources to handle the deal Valuation gap Lack of managerial focus on M&A Shareholder activism Adverse economic environment Funding availability Regulatory environment Adverse political environment Insufficient opportunities/suitable targets 8% 9% 9% 7% 7% 6% 15% 16% 13% 12% 21% 23% 28% 27% 28% 26% 28% 30% 32% 31% Consumer products and retail respondents Internal challenges are the main barrier to achieving M&A goals in the near term across companies. CP companies face more pronounced issues around M&A execution compared to other sectors. Page 39

40 Are CP companies overpaying for assets in a bid to acquire limited attractive targets? For acquisitions completed recently, what was the most significant issue that contributed to deals not meeting expectations? Strategic value overestimated/purchase price multiple too high 32% 30% Unforeseen liabilities (tax, HR, pension etc.) Product/sales price and margin deterioration Poor execution of integration Sales volume declines/loss of customers 17% 19% 17% 19% 17% 14% 11% 13% Poor operating cost assumptions 6% 5% Consumer products and retail respondents The lack of quality targets continues to drive premiums across companies. Companies across sectors but especially in CP seem to inadequately execute due diligence, as unforeseen liabilities are the second most significant contributor to deals that fail to meet expectations. Margin deterioration continues to increase in importance despite sustained focus on cost-structure optimization. Page 40

41 Survey demographics Page 41

42 Survey demographics What are your company s annual global revenues in US$? What is your position in the organization? $5b or more 27% $5b or more 22% C-level executive 59% C-level executive 59% $1b to $4.9b $500m to $999.9m Less than $500m 31% 24% 18% $1b to $4.9b $500m to $999.9m Less than $500m 17% 31% 30% SVP/VP/Director Head of BU/dept. 6% 35% SVP/VP/Director Head of BU/dept. 3% 38% What best describes your company ownership? Publicly listed 64% Publicly listed 55% Privately owned 22% Privately owned 32% Private equity portfolio company 9% Private equity portfolio company 10% Family-owned 3% Family-owned 2% Government/state-owned enterprise 2% Government/state-owned enterprise 1% Page 42

43 Proportion of top industries represented Consumer products and retail 15% Diversified industrial products 13% Automotive and transportation 12% Life sciences 8% Financial services 8% Technology 8% Media and entertainment 5% Power and utilities 5% Oil and gas 4% Telecommunications 4% Page 43

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