Why M&A transactions will increase despite a slowdown?

M&A transactions will increase

Despite the global economic slowdown, business leaders continue to target M&A transactions.Reports indicate that more than half of the global companies plan to acquire in the next 12 months.This is because companies are looking to reshape their portfolios even in this global uncertainty.
Companies are focusing on M&A in order to access talent and technology. Firms are looking to invest more than 25% of their capital in technology solutions that can drive topline growth.Apart from acquisitions, Companies are investing in new technologies through Joint Ventures and external venture funds.
Companies are facing difficulties in securing the right skills and talent.The talent crunch is increasingly visible in Europe especially in UK and Germany.
Companies are not interested to develop technology solutions inhouse because they do not have the skills available to build these solutions.Hence firms are interested to buy technology solutions in order to acquire the skills needed to underpin future growth.
Companies are not expecting a recession, atleast in the near term.Major economies around the world, especially US are very confident in their economic outlook.The major concern lies in Europe with major economies like Germany and UK already reeling under an economic slowdown.Germany has already announced that it is under a recession due to the severe hit in the manufacturing and automotive sector.
Inspite of the slowdown in Europe, the deal activity especially in UK and Germany have remained active in 2019.US economy continues to be bullish and majority of the companies do not expect any recession or even a significant chance of a slowdown in the near to mid term.
US China Trade war and other tariff issues remain a major point of concern among companies. Companies in the manufacturing and semiconductor sector are actively planning to mitigate the impact of trade and tariff issues by reconfiguring their supply chains and relocating their production facilities.

M&A transactions will be competitive and even hostile in 2020

• Even though the business leaders expect a bullish outlook, the deal environment in 2020 is expected to be competitive and sometimes even hostile.The acquisitions are going to be extremely competitive with Private equity firms and corporate acquirers vying for the same assets.Private equity firms will be a major acquirer in 2020 because of the huge amount of capital available with them.
• Large deals – Deals with target companies more than $10B in annual revenues will see high activity among corporate acquirers and Private equity firms.There will also be an increase in cross border acquisitions with US continuing to dominate in this space too.

US regains top spot, UK remains attractive to investors

• US continues to remain the most attractive destination for M&A investment activity.Inspite of uncertainty in Brexit, UK is an attractive destination for investors globally.Germany, China and Canada are the other locations for M&A investments.
• The ongoing trade issues have not impacted the decisions of the deal makers to delay their investments in M&A.The highest priority for a company is to transform its business models to increase its market share.Hence the current situation of uncertainty does not deter acquirers to invest in M&A. More deals will be done to reshape corporate portfolios and accelerate the transformation imperative facing the company’s leadership.

Long term value creation in M&A transactions

• Social impact and purpose are increasingly prominent in the boardroom agenda because companies are reshaping the way they measure success.
• Investors want the business leaders to pay attention to shoulder broader responsibilities.They want their businesses to act as good corporate citizens because if their business finds itself on doing wrong things, then they is every chance that it can disappear from the market.

Final Takeaway

M&A transactions will continue to increase in 2020 despite uncertainty and economic slowdown. This is because the imperative for companies to transform and reshape their portfolios outweigh the risk of uncertainty.