UK CEOs optimistic on growth, shift to proactive deal strategies

UK CEOs are increasingly optimistic about economic growth prospects and are shifting from a reactive to proactive deal strategy.

The findings come from the latest EY CEO Pulse Survey, which offers insights into capital allocation, investment, and transformation strategies.

The survey, encompassing 100 UK CEOs, revealed that over two-thirds (67%) of participants felt very or somewhat optimistic about the economic outlook for the next 12 months.

When focused on their companies, 73% of respondents expressed confidence in their profitability over the next year. Additionally, 68% indicated a positive outlook on investments in new areas, such as joint ventures and mergers and acquisitions (M&A).

Emerging technologies and geopolitical uncertainties remain significant disruptors for UK CEOs. Nearly half (45%) identified emerging technologies like artificial intelligence as key industry disruptors over the next year. Meanwhile, 38% pointed to the shifting global economic environment and geopolitical upheavals. The elevated cost of capital was cited by 36%, and only 23% identified climate change and environmental issues as top disruptive priorities.

Regarding responsiveness to industry disruptions, 34% of UK CEOs claimed to be highly responsive and ahead of the curve, while 64% admitted they are moderately responsive but require improvements in key areas.

Concerning portfolio review processes, UK CEOs recognised the need for changes. Over a third (35%) described their portfolio reviews as reactive, while 30% noted a lack of aggression due to complacency. When asked how frequently they assess their portfolios against core strategies, over half (53%) said they do so quarterly. This was followed by 18% who review semi-annually and 15% who conduct reviews monthly.

Silvia Rindone, UK&I Managing Partner for Strategy and Transactions at EY, commented, "After a challenging few years, it's encouraging to see a positive shift in sentiment among UK business leaders. This renewed confidence, reflected in our latest survey, will help drive UK CEOs to move from a reactive to proactive deal strategy and capitalise on disruptive forces at play. It's critical that business leaders maintain an agile and forward-thinking approach to portfolio management to adapt to this new dynamic landscape and ensure they don't get left behind."

Strategic transactions remain a focal point for UK CEOs. Nearly all respondents (98%) anticipate pursuing transaction initiatives in the next 12 months. Among these, 40% are looking at M&A, 49% at joint ventures or strategic alliances with third parties, and 31% at divestments, spin-offs, or IPOs. However, 91% reported having paused or cancelled a transaction in the past year, with 32% attributing this to high financing costs.

Rindone addressed this issue, saying, "The CEO survey results highlight a significant appetite for transactions among UK CEOs. However, while many are eager to engage in deals, the fact that 91% had to pause or cancel transactions due to high financing costs underscores the ongoing challenges of capital availability. This balancing act between opportunity and financial caution will likely shape corporate strategies in the year ahead."