In April, L’Oreal signed a deal to acquire 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 tune of $1.45 billion. Analysts predict that these and other deals that will be announced in the second half of 2023 will jolt M&A activity.
However, the fundamental conditions slow the process of negotiating. A yield curve that is inverted where shorter-term debt instruments have higher yields than longer-term bonds is not sustainable. The increasing interest rates make it more difficult to borrow money and also shift the focus of many businesses away from M&A. And global volatility continues to discourage potential buyers.
A growing interest in ESG issues (environmental, Social and Governance) is a different force which will affect future M&A. As these issues are incorporated into the strategic plans of more CEOs as they become more prominent, they’re likely drive M&A that includes purchases and disposals of assets with the intention of reducing their ecological footprint.
In the final analysis lastly, the M&A landscape is undergoing further change as companies seek partners that are more aligned with their primary business goals. Particularly, M&A is expected to increase in the areas where disruptions to supply chains are increasing and the need for vertical integration is becoming more acute. This includes the information and communication technology (ICT), manufacturing, automotive and food industries. Consolidation is also likely to be seen in sectors which have been able to enjoy high valuations because of the rise of startups. This will include areas like artificial intelligence, augmented reality, telemedicine, and blockchain.