Upcoming Deal Trends

L’Oreal announced an agreement in April to acquire the beauty brand Aesop. Hewlett Packard Enterprise made a $500 million acquisition of Israeli cloud security http://thisdataroom.com/virtual-data-room-tool-for-legal-professionals firm Axis. And U.S. midstream company Energy Transfer merged with Lotus Midstream Operations for $1.45 billion. The consensus is that these and other deals coming up in the second half of 2023 will increase M&A activity.

But the underlying conditions still hinder deal-making. A yield curve that is inverted where shorter-term debt instruments have higher yields than longer-term bonds is unsustainable. The rising rates of interest make it difficult to obtain loans and shift the focus of many businesses away from M&A. And global volatility is putting off potential acquirers.

Another factor that will influence the future of M&A is the increasing emphasis on ESG (environmental social, societal and governance) issues. As these issues become a part of the strategic agendas of more CEOs, they will likely be driving M&A including the purchase and sale of assets to decrease their environmental footprint.

Finally, the M&A scene is experiencing further transformation as companies look for partners that are closer to their core business purpose. M&A will continue to grow in sectors with disruptions to supply chains that are growing and where vertical integration is needed more than ever. This will include the information and communication technology (ICT), manufacturing, food and automotive industries. Additionally, consolidation is likely to continue in areas where startup success has led to high valuations. This will include sectors such as artificial intelligence and augmented reality, as well as blockchain and telemedicine.

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