october 2015 | 13th edition global capital confidence barometer october 2015 | 13th edition 36...

October 2015 | 13th edition

Global

CapitalConfidence Barometer


36 respondents

Chile


Global

CapitalConfidence Barometer


Global

36 respondents

Chile

13th Capital Confidence Barometer

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 2015 | 36 executives

from Chile | Companies from 53 countries | Respondents from 19 industry sectors | 863 CEO, CFO

and other C-level executives |

Macroeconomic environment


What is your perspective on the state of the global economy today?

Global respondents

► 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.

Executives show resilience in the face of short-term macro volatility

12%

41%44%

3% 22%

61%

14%3%

36%

47%

9%

7%

1%

Strongly improving Modestly improving Stable Modestly declining Strongly declining

Oct-15

Apr-15

Oct-14 33%

52%

15%27%

40%

23%

10%

14%

28%

30%

25%

3%

Chile respondents

Oct-15

Apr-15

Oct-14


20%

20%

33%

20%

7%

Apr-15

Strongly improving Modestly improving Stable Modestly declining Strongly declining

3%

31%

32%

21%

13%

Oct-14

What is your perspective on the state of the local economy today?

Chilean respondents see the domestic economy as stable to modestly declining

► Strong optimism has disappeared.

11%

42%28%

19%

Oct-15

Chile respondents


Please indicate your level of confidence in the following at the global level:

Global respondents

Globally, corporate earnings and other leading market indicators remain positive

► 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.

Credit availability

Short-term market stability

Corporate earnings

Equity valuations/stock market outlook

73%

71%

70%

54%

72%

69%

72%

51%

58%

64%

77%

54%

Credit availability

Equity valuations/stock market outlook

Short-term market stability

Corporate earnings

50%

47%

44%

34%

51%

60%

27%

57%

41%

31%

39%

64%Oct-14

Apr-15

Oct-15

% of positive attitude Chile respondents


Please indicate your level of confidence in the following at the local level:

Chile respondents

Chilean executives see domestic market indicators as stable to declining

► The percentage of respondents seeing the domestic indicators as declining has increased significantly.

Oct-14

Apr-15

Oct-15

51%

30%

33%

26%

60%

45%

23%

10%

22%

Oct-14

Apr-15

Oct-15

54%

43%

17%

10%

37%

41%

36%

20%

42%

Oct-14

Apr-15

Oct-15

41%

54%

39%

38%

33%

30%

21%

13%

31%

Oct-14

Apr-15

Oct-15

54%

53%

36%

31%

40%

28%

15%

7%

36%

ImprovingStableDeclining

Corporate earnings Short-term market stability

Equity valuations Credit availability


What do you believe to be the greatest economic risk to your business over the next 6–12 months?

Increased global and regional polit-ical instability

Increased volatility in commodities and currencies

Economic and political situation in the eurozone

Slowing growth in key emerging markets

Timing and pace of interest rate rises in the US

29%

24%

23%

18%

6%


Slowing growth in key emerging markets

Increased global and regional political instability

Economic and political situation in the eurozone

Timing and pace of interest rate rises in the US

47%

25%

14%

14%

0%

Global respondents Chile respondents

Currency and commodity volatility concerns persist as major economic risks

► 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.

Corporate strategy


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%

26%

32%

9%

8%

5%

23%

15%

24%

13%

11%

14%

11%

14%

31%

8%

22%

14%

11%

8%

26%

14%

22%

19% Acquisition strategy

Core business

Which of the following will impact your core business and your acquisition strategy most in the next 12 months?

Chile respondentsGlobal respondents

Globalization having greater impact on core and acquisition strategies

► 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.


Which of the following has been elevated on your boardroom agenda during the past six months?


Reducing costs/improving margins

Portfolio analysis, including strategic divestment (spin-off/IPO)

Regulatory and competition/antitrust oversight

Acquisitions

Cybersecurity

Shareholder activism, including returning cash to shareholders

40%

21%

21%

7%

5%

4%

2%

Reducing costs/improving margins

Portfolio analysis, including strategic divestment (spin-off/IPO)


Acquisitions

Cybersecurity

Shareholder activism, including returning cash to shareholders

Regulatory and competition/antitrust oversight

43%

17%

14%

14%

6%

3%

3%


Low-growth environment compelling executives to maintain rigorous cost discipline

► 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.


52%41%

7%

45%

49%

6%

Create jobs/hire talent Keep current workforce size Reduce workforce numbers

41%

46%

13%

22%

64%

14%

With regards to employment, which of the following does your organization expect to do in the next 12 months?

Global respondents

► 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.

Chilean companies look to retain workforce

Oct-15

Oct-14

Oct-15

Oct-14

Chile respondents


Which statement best describes your organization’s focus over the next 12 months?

Oct-14

Apr-15

Oct-15

49%

31%

33%

35%

54%

56%

15%

14%

11%

1%

1%

Growth Cost reduction and operational efficiency Maintain stability Survival

Chile respondents

Oct-14

Apr-15

Oct-15

24%

36%

30%

55%

54%

56%

18%

10%

14%

3%

Global respondents

Chilean executives focus on operational efficiency

► 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.


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

25%

24%

13%

0%

0%

0%

0%

20%

22%

22%

0%

11%

Innovative

Oct-13

Oct-14

Oct-15

What is the primary focus of your company’s organic growth over the next 12 months?

More rigorous focus on core products/existing markets

New sales channels

23%

6%

23%

14%

40%

17%

Conventional

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

32%

25%

14%

0%

22%

8%

3%

30%

6%

16%

12%

9%

Innovative

More rigorous focus on core products/existing markets

New sales channels

25%

13%

40%

40%

34%

11%

Conventional


Increased R&D and innovative technologies seen as key routes to organic growth

► 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.


What percentage of available capital will you allocate to each of the following?

Improve the companys balance sheet by reducing debt

Organic growth (e.g., investing in products, talent retention, research

and development)

Inorganic growth (e.g., acquisitions, alliances and JVs)

Returning cash to shareholders

30%

28%

27%

15%

Improve the companys balance sheet by reducing debt

Organic growth (e.g., investing in products, talent retention, research and development)

Inorganic growth (e.g., acquisitions, alliances and JVs)

Returning cash to shareholders

33%

29%

24%

14%


Companies considering the full range of opportunities for allocating available capital

► 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.


56%27%

17%

Focus on core products/existing markets around efficiencies

Evolving core products and services

Entirely new products and services/true innovation

What percentage of available resources do you plan to spend on each aspect of organic growth over the next 12 months?

57%26%

17%

Time resources Capital resourcesGlobal respondents

Executives consider both core and new elements as they commit resources to organic growth

► 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 “70–20–10” organic growth split—evidence of executives becoming bolder.


58%22%

20%

Focus on core products/existing markets around efficiencies

Evolving core products and services

Entirely new products and services/true innovation

59%22%

19%

What percentage of available resources do you plan to spend on each aspect of organic growth over the next 12 months?

Chile respondents

Executives consider both core and new elements as they commit resources to organic growth

► The majority of Chilean executives are focused on core products and existing markets.

Time resources Capital resources

M&A outlook


Long-term global M&A shows value returns to pre-crisis high, but volume subdued

Source: Dealogic

*2015 M&A extrapolated from January – September 2015 run-rate; 2015 GDP is an estimate

US$m

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

Value (US$m) Volume

Eurozone Debt Crisis

Global Financial Crisis

► 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.

SUPPLEMENTAL MARKET DATA ANALYSIS


2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*2%

3%

4%

5%

6%

7%

8%

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

Value (US$m) M&A value as a % of GDP

Strong relationship between M&A and GDP, but current ration shows ample headroom for more deals

Eurozone Debt Crisis

Global Financial Crisis

Source: Dealogic, Oxford Economics 7 EY analysis

2015 M&A extrapolated from January – September 2015 run-rate

► 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.

SUPPLEMENTAL MARKET DATA ANALYSIS


What is your expectation for the M&A market in the next 12 months? - Global

Improving

Stable

Declining

83%

15%

2%

60%

39%

1%

69%

26%

5%

Improving

Stable

Declining

39%

47%

14%

36%

61%

3%

60%

34%

6%Oct-13

Oct-14

Oct-15


Continued strength of global M&A underpins increasingly positive deal market sentiment

► The vast majority of executives see the global M&A market remaining strong in 2015–16, 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.


Improving

Stable

Declining

25%

61%

14%

38%

47%

15%

53%

38%

9% Oct-13

Oct-14

Oct-15

What is your expectation for the M&A market in the next 12 months? - local

Chile respondents

Chilean executives see domestic M&A as stable

► Chilean executives shift local M&A market expectations from improving to stable in the past six months..


Do you expect your company to actively pursue acquisitions in the next 12 months?

Likelihood of closing ac-quisitions

Quality of acquisition

opportunities

Number of acquisition

opportunities

57%

69%

76%

37%

46%

69%

44%

51%

58%

% of positive attitude

42%

55%

47%

44%

47%

47%

34%

41%

43%Oct-14Apr-15Oct-15

Chile respondentsGlobal respondents

Oct-13 Apr-14 Oct-14 Apr-15 Oct-15

35%

31%40%

56%59%

43%

16%

44%

43% 44%

Expectations to pursue an acquisition

Global respondents

Chile respondents

Global deal intentions continue to increase, driven by strong improvement in deal fundamentals

► 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.


Please indicate your level of confidence in the following at the local level:

Chile respondents

Likelihood of closing acquisitions

Quality of acquisition opportunities

Number of acquisition opportunities

50%

27%

49%

37%

30%

51%

34%

39%

52%

Oct-14

Apr-15

Oct-15

Confidence in deal fundamentals hold steady

► Chilean executives have increased confidence in the likelihood of closing deals.

% respondents positive


What is your largest planned deal size in the next 12 months?

5%

14%

81%

2%

21%

77%

3%26%

71%

Greater than US$1b US$251m – US$1b US$0 – US$250m

Oct-15

Oct-14

Apr-15

*Based on Dealogic data January to September vs. January to September 14

6%

12%

82%

23%

77%

13%

19%

68%


Oct-15

Apr-15

Oct-14

Globally, upper–middle market deal plans increase

► 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.


77%

16%

7%

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)

Your planned M&A activity will mostly be:

56%31%

13%


Executives swing toward bolt-on acquisitions as companies consolidate to secure market share

► 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.


1

2

3

4

>=5

26%

30%

13%

8%

23%

28%

38%

16%

7%

11%

12%

33%

30%

13%

12%

Oct-15

Apr-15

Oct-14

How many deals of all sizes do you have in your pipeline today?


1

2

3

4

>=5

6%

29%

12%

18%

35%

17%

25%

8%

0%

50%

19%

31%

25%

0%

25%

Growth in deal pipeline size corresponds with improved dealmaking sentiment

► 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.


How do you expect your deal pipeline to change over the next 12 months?

Oct-14

Apr-15

Oct-15

66%

44%

35%

29%

23%

63%

5%

33%

2%

Increase No change Decrease

Oct-14

Apr-15

Oct-15

53%

23%

25%

35%

38%

69%

12%

39%

6%


► 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.

Growth in deal pipeline size corresponds with improved dealmaking sentiment


1

2

3

4

>=5

30%

23%

8%

8%

31%

44%

31%

0%

6%

19%

Oct-15

Apr-15

1

2

3

4

>=5

43%

36%

10%

4%

7%

52%

25%

11%

5%

7%

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?


► 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.


47%

50%

3% 27%

69%

4%

More The same Less

38%

54%

8%

19%

62%

19%

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?

Apr-15

Oct-15 Oct-15

Apr-15


► There is a majority of executives who expect M&A will continue at similar level for most dealmakers.


6%

53%

39%

2%

15%

49%

35%

1%

Significantly higher (25% or more) Somewhat higher (10%-25% gap) The gap is small (<10%) No gap

17%

33%37%

13%

11%

25%

53%

11%

How do you think that buyers’ expectations currently compare to seller’s (valuation gap)?

Apr-15

Oct-15


Oct-15

Apr-15

Manageable valuation gap supports continued dealmaking

► 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.


18%

78%

4%

35%

61%

4%

Widen Stay the same Contract

7%

86%

7%

11%

70%

19%

Do you expect the valuation gap between buyers and sellers in the next 12 months to:

Apr-15

Oct-15


Oct-15

Apr-15


► Well over half of the global and 70% of Chilean dealmakers expect valuations to remain the same – continuing the very small valuation gap.


17%

78%

5%

39%

56%

5%

Increase Remain at current levels Decrease

20%

80%

11%

61%

28%

What do you expect the price/valuation of assets to do over the next 12 months?

Apr-15

Oct-15


Oct-15

Apr-15


► 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.


What are the main drivers affecting your M&A strategy over the next 12 months?

Gain market share in existing geographical markets

Improve structural tax efficiencies

Move into new product/services areas

Move into new geographical markets

Acquire talent

Access new technology/intellectual property

Reduce costs, improve margins

32%

19%

14%

10%

9%

9%

7%

Gain market share in existing geographical markets

Move into new product/services areas

Reduce costs, improve margins

Move into new geographical markets

Acquire talent

Improve structural tax efficiencies

Access new technology/intellectual property

36%

22%

17%

8%

8%

8%

0%


Strengthening market position driving M&A strategy in the near term

► 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.


What are the main challenges to your M&A strategy over the next 12 months?

A wide range of factors challenging companies’ M&A strategy

► 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.

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

21%

19%

16%

15%

11%

11%

5%

2%

23%

11%

19%

14%

11%

8%

14%

0% Chile

Global


If you have either failed to complete or canceled a planned acquisition in the past 12 months, what was the primary reason?

Executives’ willingness to walk away from deals underscores overall health of M&A market

► 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.

We have canceled or failed to complete a planned acquisition

We have not canceled or failed to complete a planned acquisition

73%

27%

75%

25%

Competition from other buyers

Concerns about regulatory or antitrust reviews

Gap between buyer and seller expectations too wide

Investor or board scrutiny

Issues uncovered during due diligence

33%

29%

21%

12%

5%

29%

19%

29%

23%

0% Chile

Global


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%

Chile respondents

Convergence and blurring of sectors spurring companies to consider cross-sector M&A

► 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.

I am planning an ac-quisition outside of my

own sector

I am not planning an acquisition outside of

my own sector

48%

52%

50%

50%

Chile Global

n Technology, 19%

n Government & public sector, 13%

n Logistics & distribution, 6%

n Medical technology (eg, devices, diagnostics), 6%

n Other, 6%


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

Poor execution of integration

Product/sales price and margin deterioration

Failure to achieve synergies

Sales volume declines/Loss of customers

Strategic value overestimated/purchase price multiple too high

Unforeseen liabilities (tax, HR, pension etc. )

21%

21%

17%

15%

12%

11%

3%

Strategic value overestimated/purchase price multiple too high

Sales volume declines/Loss of customers

Poor operating cost assumptions

Product/sales price and margin deterioration

Failure to achieve synergies

Poor execution of integration

Unforeseen liabilities (tax, HR, pension etc. )

26%

20%

20%

17%

11%

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.


Top five sectorsWith highest intention to pursue acquisitions

All sectors with at least 5 respondents

Oil and gas

Mining and metals

Consumer products and retail

Diversified industrial products

Power and utilities

Global average

69%

67%

67%

66%

65%

59%


Power and utilities


Chile

Automotive and transportation

-

-

57%

50%

44%

14%

► 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.


What is the main strategic driver for pursuing an acquisition outside your own sector?

Access to new materials or production technologies

Changes in customer behavior

Reacting to competition

New product innovation

Technology and digitalization

36%

29%

17%

15%

3%

Access to new materials or produc-tion technologies

New product innovation

Reacting to competition

Technology and digitalization

Changes in customer behavior

25%

25%

24%

13%

13%


Range of drivers influencing companies to purse acquisitions outside of their own sector

► 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.


Sector convergence/increase competition from companies in other sectors

Industry regulation

Changing customer behavior and expectations

Product innovation

Advances in technology and digitalization

Increasing globalization

Other

25%

22%

22%

14%

8%

6%

3%

Increasing globalization

Industry regulation

Sector convergence/increase competition from companies in other sectors

Changing customer behavior and expectations

Product innovation

Advances in technology and digitalization

Other

21%

20%

16%

16%

14%

12%

1%

From where do you see the most disruption to your core business in the next 12 months?


Among disruptive core-business challenges, convergence and regulation pose greatest risk

► 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.


41%

29%

30%

Outside domestic market/immediate region Immediate region (countries close to home) Domestic market (home country)

Where is the main focus of your M&A strategy over the next year?

25%

25%

50%


Chilean companies focused on domestic area for acquisition targets

► Global respondents are pursuing a more even geographic split for M&A.

► The majority of Colombian executives see deals within the immediate region.


Companies taking advantage of attractive asset pricing in emerging markets

► 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.

What percentage of your acquisition capital are you going to allocate to the emerging markets in the next 12 months?

Above 50%

25%-50%

10%-25%

Less than 10%

None

3%

9%

29%

53%

6%

3%

1%

31%

61%

4%

Above 50%

25%-50%

10%-25%

Less than 10%

None

25%

6%

25%

38%

6%

15%

8%

15%

54%

8%

Apr-15

Oct-15



Which are the top destinations your company is most likely to invest in the next 12 months?

Global Chile

Top destinations

Top 5 destination countries

US ChileUK USChina CanadaIndia ArgentinaGermany Colombia

Chilean investment destinations concentrated in Americas

► 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.

Chile

US

Canada

Argentina

Colombia


26%

63%

5%6%

Increased Stayed the same Decreased Not relevant/ no plans to invest in eurozone

13%

56%

6%

25%

Has your intention to acquire assets in the Eurozone altered due to recent political events and changes in monetary and

economic policy?Global respondents Chile respondents

Eurozone investment appetite stable, and in some cases increased

► 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.


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

Due diligence (including analytics, big data, digital and social media diligence)

Sourcing and selecting opportunities

There has been no impact

40%

34%

17%

9%

Post-merger integration

There has been no impact

Sourcing and selecting opportunities

Due diligence (including analytics, big data, digital and social media diligence)

44%

39%

11%

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.


22%

59%

19%

50%

42%

8%

High Medium Low

What is your assessment of the current risk of a potential cyber attack/breach of your deal process?


The vast majority of executives see measurable deal process risk from cyber-attack…

► 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.


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

45%

33%

11%

11%

Always

Sometimes

Don’t know

Never

…and a majority perform cybersecurity due diligence as a matter of course

► 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.

50%

39%

11%

Between signing and closing

As part of the core diligence process

Just prior to announcement

Customers agree-ments/ system inter-

faces

Supply chain agreements/ system

interfaces

IT systems

JV/affiliates

89%

86%

64%

54%

Survey demographics


Publicly listed 65%

Privately owned 31%

Govern-ment/state-owned en-terprise 2%

Family-owned 2%

26%

11%

24%

25%

14%

$5bn or more

$3bn to $5bn

$1bn to $3bn

$500m to $1bn

$250m to $500m

Survey demographics

What are your company’s annual global revenues in US$?

What is your position in the organization?

What best describes your company ownership?

C-level executive

52%SVP/VP/ Director

33%

Head of BU/dept.

15%

Global respondents


Publicly listed 56%

Privately owned 33%

Family-owned 8%

Private equity port-folio com-pany; 3%

Survey demographics

What are your company’s annual global revenues in US$?

What is your position in the organization?

What best describes your company ownership?

C-level execut-

ive67%

SVP/VP/Dir-

ector19%

Head of BU/dept.

14%

Chile respondents

$5b or more

$3bn to $5bn

$1bn to $3bn

$500m to $1bn

$250m to $500m

Less than $250m

30%

14%

14%

14%

22%

6%


Proportion of top industries represented




Technology

Life sciences

Financial services

Oil and gas

Power and utilities

Real estate

Telecommunications


Power and utilities



Mining and metals

Agriculture based


Construction

Telecommunications

Technology

Other

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