Mergers and Acquisition deals have recovered pretty well even when the pandemic disrupted all the sectors in 2020. In the aftermath of COVID-19, the cornerstone of deal-making in 2022 continues to focus on recalibrating strategy and driving technology adoption. The global markets have shown new trends and it seems they will persist for the time being.
This article aims to understand & analyze the Global trends in Mergers & Acquisitions with their implications.
Trends In The Global Market
Large corporates appear to have fared better than their smaller, less well-capitalized competitors due to efficient operations and availability of capital. Companies seeking the benefits of size and scale have recently announced several mergers.
In the current market, there are more fundraising opportunities available for the large competitors than smaller ones especially due to the rise of SPAC(Special Purpose Acquisition Company). In Q1 of 2021, we saw a major rise in SPACs looking for targets.
The global deal volume has seen an increase in 2021 compared to 2020 or 2019. There has been a strong recovery, especially for the bigger companies.
There are a few trends that will last even longer. In the upcoming years, we will see more Alliances instead of joint ventures, more virtual deals as the technology evolves, more cross-border deals as more & more free trade agreements are being signed amongst countries.
Leaders at organizations that lacked these capabilities recognised the need of acquiring them, resulting in intensified efforts to find the suitable target and close a transaction, whether by outright purchase, joint venture, or strategic alliance.
In April 2021, Panasonic agreed to pay US$7.1 billion to acquire Blue Yonder, Inc., a developer of software for managing enterprise supply chains, to strengthen Panasonic’s portfolio and accelerate the companies’ shared autonomous supply chain mission, and Walmart announced in May 2021 that it would acquire MeMD, a telehealth company, to further Walmart’s omnichannel health delivery strategy.
Challenges & Future Implications
Deal values climbed to new highs in 2021 as well. Looking ahead, more than 80% of executives expect values in their businesses to climb higher in 2022. More than a third of CEOs anticipate a 10% increase in values in 2022.
The major challenges that Mergers & Acquisitions will have in the upcoming years, the first being that new kinds of business organizations are appearing, one of them is DAO(Decentralization Autonomous Organization), that have emerged from the Blockchain technology with no such regulatory mechanism. It would be a challenge to regulate these & what kind of effects they will have on mergers & acquisitions in the upcoming years. Secondly, the market is quite bullish and considering that the current market conditions are difficult for many people. The beer market can have major socio-economic impacts in the upcoming years. We are likely to see a lot more exits. Thirdly, Environmental Factors are becoming more & more prominent as the rich countries have committed to achieving the goal of Net Zero emissions by 2050. This gives direct indications that the Renewable energy sector will see more deals. There have been many new startups in that area. This also creates the problems of new regulations to control emissions which will have an impact on fossil fuel-based businesses. Lastly, we are seeing an increase in globalization. Companies are seeking to enter new markets & based on international relations strengthened laws are needed for more cross-country transactions.
Due to high valuations, transaction complexity, and competition for high-quality assets, 2022 will present various opportunities as well as increasing challenges for dealmakers. As part of an M&A strategy, clearly outlining objective features will aid in sifting a large number of proposals. Outlining the constraints on early prospect evaluation, such as required diligence, resource availability, and funding sources, helps acquirers position themselves to seek possibilities within their capabilities rather than being caught up in the deal frenzy.