In April, L’Oreal signed a deal to acquire the beauty brand Aesop. Hewlett Packard Enterprise made a $500 million acquisition of Israeli cloud security firm Axis. In addition, U.S. midstream company Energy Transfer merged with Lotus Midstream Operations for $1.45 billion. The consensus is that these and other deals that will be announced in the second half of 2023 will boost M&A activity.
However, the underlying conditions are slowing deal-making. Inversion of the yield curve in which short-term debt instruments yield higher than bonds issued over a longer period is not sustainable. Rising interest rates have made it unattractive to borrow money, and they’re also shifting the focus of many businesses to internal initiatives instead of M&A. Global volatility continues to discourage potential buyers.
Another factor that is shaping the future of M&A is a growing emphasis on ESG (environmental, social and governance) issues. As these issues become part of the agendas of more CEOs they will likely be driving M&A including the purchase and selling of assets to reduce their environmental footprint.
Additionally to that, the M&A landscape is going through a further transformation as companies search for partners that align with their primary business goals. Particularly, M&A is expected to increase in areas where disruptions to supply chains are increasing and the need for vertical integration is becoming more acute. This will include the information and communication technology (ICT) as well as manufacturing, automotive and food industries. In helpful resources addition consolidation is likely to continue in areas where startup successes have led to high valuations. This includes sectors such as artificial intelligence and augmented reality, telemedicine and blockchain.