L’Oreal announced an agreement in April to acquire the beauty brand Aesop. Hewlett Packard Enterprise made a $500 million acquisition of Israeli cloud security firm Axis. Energy Transfer, a U.S. midstream firm, has merged with Lotus Midstream Operations to the amount of $1.45 billion. Some analysts predict that these and similar deals will boost M&A activity in the second half of 2023.
However, the underlying factors hinder the process of making deals. Inversion of the yield curve, where short-term debt instruments are more profitable than bonds that are longer-term is unsustainable. Inflation is rising, making it unattractive to borrow money and are shifting the focus of many companies toward internal initiatives instead of M&A. Global volatility is putting off potential acquirers.
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 a part of the strategic agendas of more CEOs, they will likely drive M&A which includes the purchase and selling of assets to reduce their environmental footprint.
The M&A landscape is changing as companies look for partners that have a closer relationship to the goal of their business. M&A will continue to expand in areas that have supply chain disruptions that are increasing and where vertical integration is needed more than ever. This includes information and communication technology (ICT) as well as medtech and fintech, food manufacturing and automotive industries. Consolidation will also continue in industries which have been able to enjoy high valuations because of the rise of startups. This will include areas like artificial intelligence, augmented realities, telemedicine, and blockchain.