Summary
Against a complex economic landscape of rising interest rates, stock market turbulence and geopolitical uncertainty, M&A offers business leaders an opportunity for growth by bridging critical capability gaps. Today, talent, tech and trade are the factors that combine to create the new M&A triarchy that is inspiring deals and are cited by CEOs and CFOs as the areas that are currently the most essential for protecting and growing their businesses.
With rising inflation driving down valuations and reducing both shareholder willingness to sell and buyer commitment to previous offers, business leaders claimed that a target’s brand and reputation is what sets it apart. In difficult market conditions, familiar brand names and established reputations are seen as a robust investment and have the power to increase what buyers are prepared to pay for a target.
Although markets are actively navigating the lingering effects of the pandemic, rising protectionism legislation and the impact of the war in Ukraine, there is a historic level of capital available and an appetite for M&A activity that is predicted to increase. Business leaders who effectively manage and mitigate the associated risks will be primed to realize their strategic priorities and maximize their organization’s value.
Key takeaways
1. Diligence:
With an increasing number of risk factors, particularly those associated with financial value, reputation and supply, it has never been more important to carry out thorough due diligence. Targeted diligence in particular concerning regulatory issues is essential to properly assess timing and process issues over and above the usual evaluation of risk and value.
2. ESG:
As ESG moves up the agenda in boardrooms, so too will it be more fundamental in M&A activity. From the quality of governance structures in a target to social reputation and performance on net zero targets, ESG will impact the value of deals because it directly affects brand and reputation.
3. Timelines:
Deals are taking longer to complete, so extra time should be planned to receive regulatory approvals, including Foreign investment screening and merger filings. Regulatory approvals have, in certain cases, moved from a condition to completion to a pre-deal “go/no go” consideration.
4. Integration:
Making sure cultural alignment and desired synergies are created will require significant investment of time and resources in integration. Particular attention should be paid to ensure the target’s talent feels sufficiently aligned to the aims of new owners.
5. Deal team:
Much of the success of a deal can be down to the team you build around you – either as a buyer or a seller. Ensure you have a team that has the experience and confidence to help you address the difficult issues your organization will be confronted with. The increased complexity of deals and the wide range of risks currently facing dealmakers makes securing the right partners absolutely vital.