Emerging Trends Redefining the Mergers and Acquisitions Market

Various factors, from geopolitical tensions to the global recession, have impacted the mergers and acquisitions domain, leading to new trends in the market.

FREMONT, CA: Mergers and acquisitions (M&A) have been impacted by multiple factors, including geopolitical turmoil, increasing inflation, mounting interest rates, and concerns about a global recession. These issues are expected to continue in the coming years, making it more difficult for buyers to predict the profitability of potential targets. An unprecedented number of disruptive forces have created headwinds for dealmakers while also generating various opportunities.

The fundamentals driving dealmaking are still in place, and strategic and financial buyers alike will take advantage of better-priced opportunities for growth. M&A is integral to the development and growth of the global economy. It allows businesses to acquire new technology, make strategic transitions, and provide exits for investors, resulting in novel changes and trends in the market.

Return of the Lipstick Effect: Buyers will increasingly concentrate on smaller deals as fears of a recession trigger a lipstick effect where economic downturns spur a rise in spending on smaller, more affordable goods rather than big-ticket items. In the previous year, megadeals were not closed, which is the first time it happened in more than three years. Large deals were also significantly lower compared to the same period in the previous years.

Opportunities in Distressed M&A: The challenging operating environment will increase firms shedding non-core assets. Some deals will be strategic, like energy companies continuing to divest carbon-intensive assets. On the other hand, economic uncertainty will compel organisations to sell assets. This can increase opportunities for buyers to expand product lines, services, or supply chains at a reduced cost.

Technology M&A: The necessity of speedy digital transformation in every industry is expected to spur a wave of acquisitions in the AI and machine-leading markets in the coming years.

Geopolitical Impact: The supply chain disruptions caused by the pandemic will likely continue in the coming years, driving companies to focus on M&A to accelerate their operational resilience. Cross-border M&A activity decreased in the previous year, stifled by continued global economic and geopolitical challenges.

In Asia-Pacific, current trends will continue with increased volumes of outbound transactions in a few countries. Dealmaking in some countries will emphasise more domestic consolidation as opposed to outbound transactions.

Environmental, social, and governance (ESG) issues in dealmaking are likely to continue to be significant factors in the coming years. In Asia-Pacific, there is considerable momentum in deal activity related to renewable energy. With more investors considering ESG a vital driver of financial success, businesses will encounter significant pressure for transparency on climate risk, sustainability, social justice, and corporate governance.

In the coming years, economic uncertainty will define and challenge M&A activity with more opportunities. Digital transformation, energy transition, and the process of adapting to geopolitical impacts will provide an impetus for dealmaking as strategic buyers seek to realise transformational growth.