CEOs rule out mergers, acquisitions as level of business confidence drops

The prevailing economic volatility has made businesses strike out mergers and acquisitions as one of their survival strategies.

According to the KPMG 2024 East Africa CEOs Outlook, most chief executives now banking on organic growth to navigate through this difficult period.

The KPMG report documents a conflicting take by business executives where 76 per cent have confidence in the growth of their respective industries while 60 per cent exude the same in the growth of their economies. However, the 60 per cent confidence in the growth of their respective economies is a drop from last year’s 82 per cent.

The survey notes that East African CEOs are less confident about the growth prospects of the global economy (48 per cent) and that of their companies (56 per cent).  Last year, the percentage of CEOs with confidence in the growth of their companies was 70 per cent.

The latest findings have been described as a huge contrast compared with their global counterparts whose confidence in the growth prospects of the global economy stands at 72 per cent and their companies at 76 per cent.

“Trade barriers, regulatory demands, talent, public health crises and cyber insecurity are some of the trends CEOs agree will negatively impact their organisations’ prosperity over the next three years,” the survey says.

It adds that economic uncertainty is a top challenge for half of the CEOs – globally at 53 per cent, Africa at 52 per cent and East Africa at 54 per cent.

“Despite this, East Africa CEOs are prioritising organic growth and alliances in addition to the execution of their ESG initiatives and improving the customer experience to achieve their growth objectives over the next three years,” the survey states. “They are also betting on AI by prioritizing investments to reap its benefits.”

Barely half (48 per cent) of East Africa’s CEOs have a positive outlook on the growth prospects of the economy over the next three years on account of significant investments expected in infrastructure and energy projects and ongoing efforts to diversify the local economies beyond the traditional sectors.

“The key indicator for CEOs in redefining their strategy to achieve their growth objectives within the next three years shall be through organic growth and strategic alliances with third parties,” the survey says.

This, the survey says, is seen by the majority of the CEOs who see this as a pathway to capitalise on local market opportunities, navigating uncertainties while maximising long-term viability and profitability.

“CEOs in East Africa are likely to take a more cautious approach when pursuing mergers and acquisitions due to prevailing factors such as economic volatility and currency risk,” the survey says.

According to the study, only 26 per cent of CEOs expect growth through mergers and acquisitions because of the existing economic conditions.

“The need for stable market conditions and availability of suitable targets that align with the growth aspirations of firms continue to be prerequisites for mergers and acquisitions activity. In the absence of targets that meet these criteria, CEOs will opt for organic growth strategies,” it adds.

KPMG survey shows that CEOs in East Africa are strategically adapting their business approaches to navigate a complex landscape filled with both opportunities and challenges.
The key focus for them will be the ability to adopt new technologies such as AI and cloud computing to improve productivity and customer engagement, a shift accelerated by the pandemic.

Integrating environmental, social and governance (ESG) into business models is also becoming increasingly important as it enhances reputation and attracts investment according to the survey’s findings.

“Now more than ever, CEOs are feeling increased pressure to ensure their long-term business success due to several converging factors,” it says.