In April, L’Oreal signed a deal to purchase the beauty brand Aesop. Hewlett Packard Enterprise acquired Israeli cloud security firm Axis for $500 million. Energy Transfer, a U.S. midstream firm, has merged with Lotus Midstream Operations to the amount of $1.45 billion. Analysts predict that these and other deals will boost M&A activity in the second half of 2023.
But underlying conditions are still slowing the process of making deals. Inversion of the yield curve in which short-term debt instruments are more profitable than bonds that are longer-term is not sustainable. The increasing interest rates make it harder to raise money and shift the focus of many businesses away from M&A. Global volatility continues to discourage potential buyers.
A growing focus on ESG issues (environmental Social and Governance) is another factor that will drive future M&A. As these issues are integrated into the strategic plans of more CEOs as they become more prominent, they’re likely drive M&A that includes purchases and divestitures of assets with a aim of reducing their environmental footprint.
Additionally, the M&A scene is experiencing further transformation as companies search for partners that are more aligned with their main business objective. M&A will continue to expand in industries that experience supply chain disruptions that are increasing and in areas where vertical integration is required more than ever. This will include information and communication technology (ICT) as well as medtech food, fintech, manufacturing, and the automotive industry. Additionally, consolidation is likely to continue in areas where startups’ successes have led to high valuations. This includes sectors such as artificial intelligence, augmented reality and telemedicine, as well as blockchain.
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