M&A Evolution: Trends Shaping The Future of Business Consolidations

M&As have become an indispensable strategic tool for businesses that aim to expand their operations in a rapidly changing corporate sector. M&A deals help companies in:

1. Expanding into new markets
2. Building a competitive advantage
3. Obtaining new technologies and skill sets

However, before entering into a transaction, businesses, investors, and other stakeholders need to understand the trends and dynamics of M&As.

Let’s assess the implications for the future.

What Is An M&A?

M&A is a term used for mergers, acquisitions, and similar business transactions. M&As involve a company either acquiring another company (acquisition) or two different business entities merging to create a new business entity (merger).

It is important to note that the names of the merging companies may remain the same after the transaction.  They may combine their operations and use assets or workforce for mutual benefits.

What Are The Major Reasons For Mergers And Acquisitions

There can be multiple reasons that trigger an M&A transaction but here are some of the most common ones.

Increased market influence

Through a horizontal merger, the resultant company achieves a greater market share, empowering it to influence prices.

Similarly, vertical mergers enhance market power by granting the company more control over its supply chain and mitigating external supply shocks.

Accelerated growth

Opting for inorganic growth via M&A deals enables a business to achieve higher revenues more quickly than through organic growth.

What’s more, by merging with a business possessing the latest capabilities, a company can gain benefits without undertaking the risk of internal development.

Diversification

Firms engaged in cyclical industries often seek to diversify their cash flows to reduce losses during industry downturns. The acquisition of a target in a non-cyclical industry provides a means for a company to diversify and reduce market risk.

M&A Evolution: Trends Influencing How Businesses Approach Business Consolidations

Digital transformation

A key trend in M&A involves the influence of digitalization. Technological advancements such as

• Internet of Things
• Artificial intelligence
• Cloud computing

Have excited businesses around the globe with technological acquisitions. That is because it will help them sustain their competitiveness in the market.

It is a major reason behind an increase in tech-centric M&A deals in which businesses are showing great interest in acquiring other businesses rich in cutting-edge technologies. Lastly, this trend is expected to persist for a long time because technology is the future of the corporate world.

You can also stay connected to a global M&A community here  https://mnacommunity.com/. The MNA community is a great forum that can connect you with global M&A experts and lists some of the latest mergers and acquisitions news.

Environmental, social, and governance integration

Environmental, social, and governance factors will have an impact on the decision-making process in the M&A industry.

What’s more, investors and regulators now demand more transparency and a commitment to sustainable practices.

It is safe to say that ESG performance is going to be an important factor in future mergers and acquisitions.

Emphasis on better due diligence

Thorough due diligence in mergers and acquisitions is mandatory to identify potential risks and opportunities. It facilitates:

• Informed decision-making
• Successful integration

Investors across the world want dealmakers and businesses to spend more time and resources to better assess the potential risks and benefits of merging.

Investors want an in-depth analysis of financial, technological, operational, and even cultural aspects during the due diligence phase.

Cross-border M&A deals

Although there are geopolitical uncertainties, globalization continues as a key triggering force behind cross-border M&A transactions. Companies and investors are keen on cross-border mergers and acquisitions because they help:

• Gain access to new markets
• Diversify their portfolios
• Strengthen their global presence.
• Utilize a talented and skilled workforce

Nonetheless, the ability to navigate regulatory challenges and cultural differences becomes pivotal for success in such international transactions.

Successful Mergers And Acquisitions Examples

Here are some notable examples of successful mergers and acquisitions in the recent past.

L3Harris acquisition of Aerojet Rocketdyne 

Total deal value: $4.7 billion.

Industry: Aerospace.

L3Harris is an international organization and a leading name in the defense and aerospace sector. L3Harris has recently acquired Aerojet Rocketdyne. The latter is a manufacturing company that deals in manufacturing propulsion systems and rocket engines.

The idea behind L3Harris’ acquisition is to create synergies between two highly creative research and development teams within the sector and achieve economies of scale (reduce overall costs).

United Health acquisition of LHC Group Inc. 

Total deal value: $6 billion.

Industry: Healthcare.

United Health Group is an insurance provider in healthcare services. It has acquired LHC Group. This strategic move involves integrating LHC into United Health’s Optum subsidiary as part of Optum Health.

LHC Group will expand the patient network for Optum Health and Optum Health will bring a huge network of skilled physicians to LHC Group.

The Takeaway

The global M&A landscape is changing continuously. Investors and corporations now favor tech acquisitions while cross-border transactions are also on the rise. Major challenges in modern-day M&As include better due diligence and ESG integration.