L’Oreal announced that it had signed a deal to purchase the beauty company Aesop. Hewlett Packard Enterprise made a $500 million acquisition of Israeli cloud security company Axis. Additionally, U.S. midstream company Energy Transfer merged with Lotus Midstream Operations for $1.45 billion. Commentators predict that these and other deals coming up in the second half of 2023 will jolt M&A activity.
But the fundamentals are slowing the process of making deals. A yield curve that is inverted where short-term debt instruments provide better yields than longer-term bonds – remains unsustainable. The rising rates of interest make it difficult to raise money and shift the focus of many businesses away from M&A. Global volatility continues to discourage potential buyers.
A growing interest in ESG issues (environmental Social and Governance) is a different force that will drive future M&A. As these issues become a part of the strategic agendas of more CEOs, they will likely be driving M&A, including the purchase and selling of assets to reduce their ecological footprint.
Finally to that, the M&A landscape is currently undergoing a change as companies seek partners that are more aligned with their core business objectives. M&A will continue to grow in sectors with disruptions to supply chains that are increasing and where vertical integration is required more than ever. This includes information and communications technology (ICT) and medtech food, fintech, manufacturing, and automotive industries. Consolidation will also continue in areas which have seen high valuations owing to startup success. This includes sectors such as artificial intelligence, augmented realities, telemedicine, and blockchain.