In April, L’Oreal signed a deal to purchase the beauty brand Aesop. Hewlett Packard Enterprise acquired Israeli cloud security company Axis for $500 million. Energy Transfer, a U.S. midstream firm, has merged with Lotus Midstream Operations to the amount of $1.45 billion. The analysts predict that these and other deals will increase M&A activity in the second half of 2023.
However, the fundamental conditions hinder deal-making. An inverted yield curve – where shorter-term debt instruments offer better yields than longer-term bonds is not sustainable. Rising interest rates have made it unattractive to borrow money and also changing the focus of many companies to internal initiatives, rather than M&A. And global volatility continues to discourage potential buyers.
Another driving force that will shape the future of M&A is a growing focus on ESG (environmental, social and governance) issues. As these issues are integrated into the strategic plans of more CEOs, they’re likely to drive M&A that involves purchases and divestitures of assets with a intention of reducing their ecological footprint.
Lastly it is worth noting that the M&A landscape is going through a further transformation as companies search for partners that match their primary business goals. M&A will continue to expand in industries with supply chain disruptions that are increasing and in areas where vertical integration is needed more than ever. This includes the information and communication technology (ICT) manufacturing, food, and automotive industries. Consolidation is also likely to continue in sectors which have had high valuations as a result of the rise of startups. This will include areas like artificial intelligence, augmented reality, telemedicine, and blockchain.
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