Upcoming Deal Trends
In April, L’Oreal signed a deal to acquire beauty brand Aesop. Hewlett Packard Enterprise acquired Israeli cloud security firm Axis for $500 million. In addition, U.S. midstream company Energy Transfer merged with Lotus Midstream Operations for $1.45 billion. Analysts predict that these and other deals in the back half of 2023 will jolt M&A activity.
However, the underlying conditions are slowing deal-making. A yield curve that is inverted – which means that shorter-term instruments of debt offer higher yields than bonds with longer maturities is not sustainable. Rising interest rates are making it unattractive to borrow money and also shifting the focus of a lot of businesses to internal initiatives rather than M&A. Global volatility continues to discourage potential buyers.
A growing focus on ESG issues (environmental Social and Governance) is another force that will drive future M&A. As these issues are incorporated into the strategic agendas of more CEOs, they will likely be driving M&A which will include the acquisition and selling of assets in order to reduce their ecological footprint.
In the final analysis it is worth noting that the M&A landscape is going through a further change as companies seek partners that are closer to their core business objectives. M&A will continue to grow in industries with supply chain disruptions that are increasing and in areas where vertical integration is needed more than ever. This will include information and communication technology (ICT) and medtech as well as fintech, food manufacturing, and the automotive industry. In addition the trend of consolidation is likely continue in areas where startups’ success has led to high valuations. This includes sectors such as artificial intelligence, augmented reality, telemedicine, and blockchain.