Companies eye partnership deals to counter low growth

Published 26.04.2016 00:00
Updated 26.04.2016 01:12

With global economic growth slowing, inflation staying low and digital innovation generating uncertainty, companies are increasingly looking at partnership deals with other firms, even competitors, to boost revenues, consulting firm EY said yesterday. In its half-yearly review of corporate deal-making, EY found that 40 percent of firms plan to enter alliances of some kind. Such deals can involve sharing resources to undertake specific projects, and are usually informal and less permanent than joint ventures.

Partnerships are becoming increasingly popular. IBM, Apple and Johnson & Johnson and others are working together to develop mobile apps that would help patients. EY itself recently entered into an alliance with LinkedIn to offer services via social networks. "Alliances are increasingly being seen as a means to take advantage of the expertise of others," said Pip McCrostie, EY's global head of transactions. "They provide a more informal, lower risk approach, enabling companies to respond quickly to changes to the market." Elsewhere in its survey, EY said companies remain very interested in acquisitions in order to offset the impact of lower growth. It found that 50 percent of the executives it polled intend to make transactions over the coming year.

Though down from the record 59 percent recorded in October, the appetite for mergers and acquisitions, or M&A, remains well above the survey's seven-year long-run average of 41 percent. In effect, companies look to bolster their finances by purchasing other firms and reaping their profits. In a slower-growth world that has its roots largely in the slowdown in China's economy, deals can help cushion firms' finances.

"Prolonged low economic growth coupled with market disruption is generating a strong M&A appetite," said McCrostie. "Given the pressure on pricing and the pace of change, organic growth alone is often not enough." Companies are also shifting to bigger deals with a five-fold increase in the number of firms looking to make acquisitions worth $1 billion or more.

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