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Mergers and acquisitions and opportunities

The path to thrive: M&A strategies for a brave new world

The mixed signals of today’s M&A market

 

Global mergers and acquisitions (M&A) markets reached a nadir in 2023, with challenging conditions suppressing total deal value below US$3 trillion for the first time in a decade. There are, however, a few strong positives.

Deal volumes remained well above the decade average in spite of a 3% slippage. In a clear sign of returning corporate confidence, the megadeal segment (over US$10 billion) largely kept pace, with 28 such agreements announced. Perhaps most notably, the year ended with a bang when nearly US$750 billion worth of deals were announced in rapid succession during the last three months, with buoyancy spilling over into 2024.

How we got here

 

In 2021-22, following the uneven sector effects from the COVID-19 pandemic, a record US$8 trillion worth of deals were announced. The businesses doing deals took advantage of their strong cash positions and the favourable debt markets, particularly in 2021 before the Ukraine crisis, to make M&A central to recovery.

The recovery of recent years was short-lived, however. In 2023, deal values slumped to a decade low of US$2.6 trillion, following a period of macroeconomic uncertainty, inflation and the raised interest rates that had an impact on businesses’ cost of debt.

Nevertheless, the near US$750 billion worth of deals announced in the last quarter of 2023 and the 28 megadeals throughout the year, may indicate returning confidence. The largest corporate M&An activity by value was in energy, resources and industrials, the only category to grow as oil and gas companies defensively pursued scale.

Overall, deal volumes remained steady in 2023, with more than 54,600 agreements. Amid the value decline, there was an emphasis on mid/smaller-sized deals. Agreements worth less than US$100 million were the only category to grow, as companies sought targeted market growth, new capabilities and cutting-edge partnerships.

Defensive M&A: Building resilience

 

One of the lessons from the pandemic is that all companies, large or small, will need to firmly establish resilience at the heart of their business model and organisational culture. We anticipate these defensive plays will materialise in a few different ways.

Accelerate synergy realisation and deliver value: In 2022 and 2023, shareholders approved more than US$5.8 trillion worth of deals and now the dealmakers involved can expect significant investor pressure to accelerate synergy realisation and deliver value.

Optimise the portfolio: Many companies are facing pressure from activist hedge funds for portfolio restructuring, from regulators pressing for asset carve-outs as a condition for merger approval—and from their own boards, which are keen to ensure companies remain on track with sustainability and net-zero commitments.

Explore opportunistic deals to safeguard supply chains and competitive positioning: Global supply chain disruptions are affecting every sector, either directly or indirectly. In addition, changing stakeholder expectations toward environmental, social and governance (ESG) are putting pressure on businesses to fundamentally redesign their supply chain systems to improve transparency and reduce their carbon footprint. M&An activities can play a key role in shaping the response.

Offensive M&A: Charging the growth engine

 

Bold moves involving transformative acquisitions, ecosystem alliances and disruptive investments will be required to charge the growth engine and lay the groundwork to capture market leadership. Companies clearly need to play offence to gain momentum and we anticipate those efforts to materialise in several different ways.

Capture the digital future: The pandemic conditions ruthlessly exposed companies that lagged in digital investment, omnichannel capabilities and agile operating models. At the same time, they enabled new market opportunities for companies that were digitally prepared.

Identify portfolio gaps and expand the value chain: Corporations need to regularly reevaluate their sources of competitive advantage, identify portfolio gaps and consider opportunities for expansion. Establishing a pipeline of deals can expand a company’s value chain and make it easier to capitalise on adjacent market spaces.

ESG—delivering returns with purpose: Businesses are increasingly expected to demonstrate they can deliver returns with purpose and create value not only for their shareholders, but also for their stakeholders including employees, customers, suppliers and the societies where they operate.

Collaboration as a competitive advantage: One of the enduring legacies of the pandemic is how corporates embraced collaboration, forming the bedrock of global recovery. Current conditions will continue to bring significant challenges such as supply chain disruptions, skills shortages, climate change complexities, cross-sector convergence and many others that cannot be solved unilaterally.

Capitalise on cross-sector convergence: The rapid adoption of exponential technologies, digitisation of businesses and shifts in consumer attitudes are blurring traditional sector boundaries, leading to convergence of business models across disparate sectors. It is resulting in the further evolution of ecosystems and creating opportunities for innovators and nontraditional players to disrupt established companies by redefining the basis of competition.

M&An and the path to thrive

 

M&A strategies are now firmly cemented as a fundamental part of the corporate arsenal, both in defence to preserve value and in offence to drive transformative growth. This framework can help companies articulate a new combination of M&A strategies to fortify their gains, accelerate business model transformation and make horizon investments to capture lasting market leadership.

Sector pathways

Observations



  • Energy, Resources & Industrials (ER&I) improved in 2023 with stable deal volumes and an 8% YoY increase in deal value to US$868 billion, driven by megadeals (≥US$10 billion) in Oil & Gas.
  • North America, with US$508 billion worth of deals, was the most active region with respect to deal value. Asia-Pacific with 4,152 deals (US$180 billion) led in terms of deal volume.


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Observations



  • The Consumer sector saw a continued decline in M&An activity, with value down 22% YoY to US$475 billion in 2023.
  • In terms of M&A volume, Europe was the most active region with 5,292 deals, followed by Asia-Pacific (4,614 deals) and North America (4,002 deals). Asia-Pacific had the highest total deal value at US$164 billion driven by a high volume of small-sized (<US$250 million) deals.


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Observations



  • After a heavy decline the prior year, Life Sciences & Healthcare (LSHC) recorded a 9% YoY increase in deal value to US$327 billion in 2023. The growth was primarily driven by the 36% YoY increase in the large deals segment (≥US$1 billion to US$10 billion) to a total US$148 billion.
  • North America was the most active region and deals worth US$224 billion were announced in 2023. Europe came a distant second with US$54 billion worth of deals.


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Observations



  • The decline in financial services M&An activity continued in 2023, with the sector registering a 42% YoY deal value drop to US$393 billion in 2023, the lowest in a decade. Deal volumes also saw a YoY decline of 18% to 7,085 transactions.
  • Asia-Pacific was the most active region in terms of deal volume with 2,339 transactions, followed by Europe with 2,187 deals.

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Observations



  • Technology, Media & Telecom (TMT) closed with US$533 billion worth of deals in 2023, a decline of 39% in value, while volumes were stable.
  • North America was the most active region for TMT deals, with US$279 billion worth of M&An activity in 2023. Europe was at a distant second, at US$138 billion.


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M&A strategies for a brave new world

The importance of M&An as an enabler of change has been demonstrated by the record-breaking activities during one of the most difficult times in business history. Looking ahead, we anticipate traditional M&A, as well as alternatives such as alliances and partnerships, to not just play a pivotal role but also evolve to meet new expectations and conditions. Successful companies will heed the lessons from the past while remaining resolutely focused on the horizon.


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