Businesses aiming for market expansion, new technology acquisition, or debt financing have long considered mergers and acquisitions (M&A) to be essential strategies. However, in recent times, the landscape of M&A activities has shifted. Several influences shape mergers and acquisitions, including macroeconomic trends, market volatility, sector changes, and shifting corporate strategies. To understand the dynamics of this subject matter and the available market intelligence, it is important to look at recent M&A trends.
The importance of M&A trends in global markets has grown significantly over recent times. Although mergers and acquisitions have always been part of the corporate world, the sudden increase in these activities and their reasons necessitate attention. The fact is that companies are moving on, while trends in mergers and acquisitions vary. In this regard, this article will go through some current trends in mergers and acquisitions, how they are shaped by economic circumstances, insights specific to sectors, and what lies ahead for M&A space.
Current Trends in Mergers and Acquisitions
-
Rise of Cross-Border Mergers and Acquisitions
One of the most prominent recent trends in mergers and acquisitions is the increasing rise of cross-border deals. This has been possible due to globalization and the opening up of emerging markets, which have triggered a tremendous surge in international M&A. Companies aim at global expansions by searching for new markets, resources, and technologies, among other factors. In this regard, cross-border M&A enables companies to diversify their portfolios, reduce geographic risks, and penetrate new markets that foster long-term growth.
For example, there has been a significant increase in outbound deals from Asia-Pacific, specifically driven by strong growth in sectors such as technology, finance, and manufacturing. These multinational corporations want to capitalize on these markets to take advantage of consumer demand and emerging economies, which are regarded as major growth engines in the world economy.
-
Technology and Digital Transformation
As more businesses choose to go digital, technology companies become more attractive for mergers and acquisitions (M&A). Due to the rising demand, companies need software solutions, AI tools, cloud computing services, and big data analytics. This is mainly seen in sectors like finance, healthcare, and manufacturing that now depend on digital technologies to conduct their businesses.
In the investment research outsourcing field, technology firms have increasingly been engaging in private equity outsourcing and investment banking services, and this is done by embracing new technological innovations aimed at improving research efficiency and decision-making capabilities.
Read more: US Merger and Acquisition (M&A) 2H24 Outlook
-
ESG (Environmental, Social, Governance) Factors
Another major trend impacting M&A activity is the increasing focus on Environmental, Social, and Governance (ESG) factors. Investors now focus much more on sustainability and social responsibility when making investment decisions, which has increased the number of M&A deals involving companies with strong ESG practices.
As a result of this belief that these businesses are better positioned to survive in the future, businesses that have excelled in sustainability become attractive acquisition targets for investors. Furthermore, integrating ESG factors into their business models by companies enhances their corporate reputation, ensures stakeholder appeal, and guarantees long-term growth.
-
Private Equity Activity and Deal Valuations
Private equity (PE) firms have been active in the M&A market, with an increasing number of buyouts and leveraged transactions. In private equity outsourcing, PE firms now use external advisory services to support deal-making and valuations. The investment research outsourcing services offered by firms like SG Analytics provide in-depth analysis and support to help private equity make informed decisions during the acquisition process.
Besides, we are witnessing a rise in the valuations of mergers and acquisitions due to a mix of low interest rates, high liquidity, and competition among private equity companies for good investments. On the one hand, these high appraisals may carry some risk, but they also reflect the strong market interest in certain sectors.
How Market Conditions Shape Mergers and Acquisitions Trends?
-
Economic Cycles and Market Volatility
Economic cycles and market volatility have tremendous impacts on the frequency as well as the nature of mergers & acquisitions. During economic growth periods, businesses are likely to engage in mergers and acquisitions because they are financially stable and expect good results from market opportunities. In this light, companies perceive M&A as a strategic means of improving their market share, expanding operations, or entering other industries.
On the other hand, during an economic downturn or recession, there is usually a decline in the number of M&As. Due to uncertainty about revenue streams, lower consumer spending, and existing financial constraints, businesses will take excess caution. Post-pandemic recovery has witnessed a boost in deals with firms seeking diversification as well as opportunities in sectors anticipated to grow after the Coronavirus threat is over.
-
Interest Rates and Capital Availability
Interest rates and capital availability determine the acquisition landscape's different aspects. Low interest rates encourage borrowing, making it affordable for companies to undertake acquisitions. Private equity funding further supports this trend, giving businesses more capital access for M&A purposes.
In contrast, the high cost of borrowing due to increased interest rates has made most firms reconsider large-scale acquisition activities. Therefore, the amount and cost of money determine the scale and magnitude of mergers and acquisitions. This is where investment banks and private equity outsourcers come in handy, as they assist companies in structuring deals that do not hinder their growth prospects.
Read more: The Rise of Sustainable Finance - Impact Investment Trends
-
Regulatory Landscape
The existing regulatory environment heavily influences mergers & Acquisitions trends. Governments have been tightening global compliance to avoid practices that may lead to collusion or destabilization of international industries, leading to greater scrutiny of such huge business combinations, especially in critical areas such as tech, healthcare, and defense, which are considered vital for national security purposes.
For instance, most high-profile merger cases have either been modified or blocked on grounds related to anti-trust regulations within the US or European Union. Additionally, cross-border merger plans pose additional hurdles due to foreign investment laws governing them. In order to do this, businesses are increasingly relying on investment research outsourcing firms that can offer a robust assessment of regulatory risks during this process and ensure a company remains compliant throughout its M&A journey.
-
Sector-Specific Dynamics
This is also because market conditions affect these transactions greatly, resulting in industry-specific dynamics.
Sectors such as technology, healthcare, and renewable energy are experiencing an uptick in M&A activity as organizations seek to leverage innovation and meet increased consumer expectations. For example, the technology sector frequently acquires AI startups, cloud service providers, and cybersecurity firms to stay competitive.
However, industries like traditional energy and manufacturing might experience slower M&A due to either contracting growth prospects or regulatory pressures aimed at cutting down on carbon emissions. These industry-specific factors underpin targeted M&A strategies as firms respond to market realities within their sectors.
-
Geopolitical and Macroeconomic Factors
The pace and focus of mergers & acquisitions tend to be influenced by geopolitical events as well as macroeconomic conditions. Trade wars, diplomatic tensions, and government policy changes can cause uncertainty, especially in cross-border transactions. For instance, protectionist measures or greater scrutiny of foreign direct investment may hamper or even stop deals, particularly within essential sectors.
Moreover, macroeconomic indicators, including inflation rates, currency exchange fluctuations, and global supply chain disruptions, continue shaping the orientation of mergers & acquisitions. Companies might step up acquisition activities to minimize exposures or adjust accordingly during changing times.
Take, for instance, corporations embracing vertical integration to strengthen their supply chains and lessen their reliance on external suppliers despite global trade uncertainties.
Companies that understand how these market conditions affect mergers and acquisition trends can make better arrangements and adjust their plans to succeed in a high-competition environment.
Sector-Specific Mergers and Acquisitions Trends to Watch
-
Healthcare and Pharmaceuticals
The healthcare sector has experienced notable M&A activity, especially in the pharmaceutical, biotech, and medical device industries. With the increased adoption of technology in this industry, mergers and acquisitions are being propelled by the need for businesses to acquire advanced technology and diversify their product offerings.
For instance, the growing emphasis on telemedicine healthcare technology and big data analytics has stimulated mergers and acquisitions by healthcare companies and technology firms. This trend is expected to continue for many years to come as healthcare systems continue to seek out new ways of solving the increasing problem of healthcare personalization.
Read more: What is Investment Banking - Definition, Types, Role & Importance
-
Financial Services
In the financial services sector, M&A deals have concentrated on the acquisition of companies that are able to provide enhanced digital banking services and wealth management solutions and even invest in tech. As the use of banking and other financial services shifts to digital, there has been a traditional shift by financial institutions to go for acquisitions to upgrade their products to meet the new consumer requirements.
Investment banking, on the other hand, is critical in the M&A process because this industry is very regulated and complicated. Acquisition investment banks have advisory and deal structuring services that enable transactions to be undertaken with ease.
-
Energy and Renewables
In the last five years, there has been a lot of activity surrounding M&A in this area because sustainability and climate change have become important working issues, and the energy sector is a focus for them.
In the energy sector, mergers and acquisition strategies are dictated by companies’ need to expand and comply with government objectives that target carbon emissions. Deals in renewable energy, such as solar, wind, and electric vehicles, are expected to grow in the coming years.
Future Outlook on Mergers and Acquisitions Trends
-
Stronger Emphasis on Development and Digitization
Looking ahead, mergers and acquisitions (M&A) will emphasize innovation and technological advancement. Businesses are beginning to understand the importance of technology for competitive challenges, and M&A is likely to mirror this trend.
The fundamental factors affecting these trends include artificial intelligence (AI), blockchain, and cyber security. It is no longer a question of whether such technologies are growing exponentially. Instead, they are becoming essential across industries such as healthcare, finance, retail, and manufacturing.
For example, the business realm transforms pre-existing AI applications into predictive analysis, automation, and advanced machine learning. This, therefore, leads to the purchase of AI-driven start-ups with valuable IP or AI-enabled software and advanced algorithms. Likewise, this trend is observed in the blockchain industry, especially in Fintech's supply chain and management, where companies seek to purchase or merge with businesses that have already solved the distributed ledger technology problem.
Furthermore, the increase in concerns regarding cybersecurity has increased the importance of enhancing the digital walls of many businesses. Thus, these companies employ competent teams from cyber security firms to safeguard the threats to their systems and use them as a sales point in the marketplace.
This concern of digitization has moved from debt analytics to cyber/cloud computing, as corporations are looking for ways to cope with the daily generated data captured and the structure provided.
-
More Cross-Border Transactions
Global patterns, such as newer cross-border M&A activities, will increase. The integration of trade and commerce at a global scale remains the main reason for cross-border MA activity, and this trend is expected to continue developing over the next few years. More companies today are seeking to extend their reach beyond national borders to emerging economies, broaden their target markets, and diversify their development opportunities.
Due to the increasing middle class and consumer power, global enterprises are interested in regions like Asia-Pacific, Latin America, and Africa. For example, multinationals in areas like pharmaceuticals, consumer goods, and information technologies are buying local firms in these regions to strengthen their competitive position and more easily deal with the regulations and culture.
With global supply chains becoming more complex, firms are using international M&A to obtain key materials, lower production costs, and improve their distribution systems. Businesses from developed countries are merging with or purchasing businesses in developing countries to augment their strengths in the global value chain.
On the other hand, there are a number of hurdles that such an M&A strategy poses. Cross-border transactions have challenges in the forms of regulations, geo-political factors, and integration of different cultures.
Even with the challenges faced, many organizations still consider cross-border M&A foremost because of market expansion and significant returns.
-
Emergence of Strategic Alliances
Today, there is a great deal of focus on strategic alliances instead of mergers and acquisitions. These alliances provide a way for companies to work together without having to go through the complexities of some large-scale M&As.
Strategic partnerships help businesses achieve goals that might otherwise be impossible. Companies can share resources like technology, IP, or even distribution. A good example of this would be a pharmaceutical company that partners with a biotech firm to develop a new drug. The biotech company has the needed research capabilities, while the pharmaceutical business focuses on manufacturing and distributing the drug.
Partnerships also tend to focus strongly on innovation and R&D. For instance, technology companies often collaborate to build new advanced solutions that eliminate timelines and costs during the development process. This is particularly evident in sectors like autonomous vehicles, where automakers and tech companies collaborate to create advanced self-driving systems.
Read more: Impact of Data Analytics on Private Equity Firms
Conclusion
Mergers and acquisitions are witnessing new transformations across the globe because of changes in market conditions, sectors, and trends. Current trends suggest an increased focus on the use of technology, expansion into new markets, and sustainability. Knowing and following these trends and the drivers of such M and A activities is paramount for businesses wishing to remain operative in the dynamic international economic environment and make credible choices.
For businesses navigating this landscape, it is advantageous to collaborate with investment research outsourcing services, use market intelligence, and obtain strategic guidance on private equity outsourcing and investment banking services. These services allow businesses to uncover the most lucrative business opportunities, craft the most appropriate deals, and protect themselves from threats accompanying M&A deals.
M&A in the future will primarily be influenced by the following: digitalization, concern for the environment, sustainability, and the ever-increasing interconnectedness of the globe. It is critical to stay abreast of recent trends in M&A as firms embark on innovation and growth through strategic acquisitions.
Partner of choice for lower middle market-focused investment banks and private equity firms, SG Analytics, provides offshore analysts with support across the deal life cycle. Our complimentary access to a full back-office research ecosystem (database access, graphics team, sector & and domain experts, and technology-driven automation of tactical processes) positions our clients to win more deal mandates and execute these deals in the most efficient manner.
About SG Analytics
SG Analytics (SGA) is an industry-leading global data solutions firm providing data-centric research and contextual analytics services to its clients, including Fortune 500 companies, across BFSI, Technology, Media & Entertainment, and Healthcare sectors. Established in 2007, SG Analytics is a Great Place to Work® (GPTW) certified company with a team of over 1200 employees and a presence across the U.S.A., the UK, Switzerland, Poland, and India.
Apart from being recognized by reputed firms such as Gartner, Everest Group, and ISG, SGA has been featured in the elite Deloitte Technology Fast 50 India 2023 and APAC 2024 High Growth Companies by the Financial Times & Statista.
