M&A DEAL TRENDS IN A CHANGING WORLD

With the unprecedented situations taking over the world, we see a change in business deal trends as well. These changing dynamics can be attributed to geopolitical issues, economic policy changes, law and governance changes as well. Of all these factors, the one taking the spotlight for changing M&A trends is the dynamic nature of business, exaggerated by the uncertainties of the pandemic world. Owing to expectations of increased growth rate, increasing inflation and altering product demands, business leaders are ready to take unconventional moves to accelerate growth, increase revenues and expand operations.?

On the back of expectations that the growth in the post-pandemic scenario will be highly asymmetric, businesses are expected to grow using two fronts:- either they will continue to sustain themselves from their major operations or will look to expand the operations using M&A.

Over time the M & A scenario has changed and is a combination of both defensive and offensive strategies. Firms facing operational inefficiencies are resorting to defensive mechanisms by making sure to re-check their portfolios and getting rid of companies whose survival might be skeptical in the future. Strategies for own business survival are also taken for. On one hand where companies are facing difficulty to survive there are companies with strong balance sheets who are merging or acquiring companies to either expand their core operations or diversify into other segments, thus adopting offensive strategy. They are deploying resources in an effective manner to not only retain the existing customer base but also add new customers through other segments.

The M&A landscape is witnessing a shift from cost-cutting to creating value products for the customer. Initially the deals were more oriented towards reducing cost, but now it has become way more important for businesses to look for products which add value to customer’s life and thus ensuring long term growth. This is due to the fact that businesses have realised over the period of last 2 years that customer’s taste and preferences are highly correlated to the? prevailing situation and their income levels. So in order to ensure growth and customer retention on part of business has led to this trend.

The table below portrays the total number of M&A deals in terms of deal value and volume both at the global level. Reason for massive capital inflow can also be due to the fact that interest rates are at their lowest, thus leading to a massive money supply in the economy as well.

A decline is also seen in the cross border deals. Possible reason behind this can be changing geo-political scenarios giving rise to high risk. And this might also be due to supply chain constraints which were very well highlighted due to pandemic.?In the hard core M&A segment there has been a shift towards adopting alternative deal making as well. Alternative deal making refers to choosing alternatives of M&A. Data from corporates state that 45% of the respondents mentioned alternatives to M&A including joint venture, alliances and SPACs (Special purpose acquisition companies). Only 35% opted for traditional acquisitions.?

Apart from the technicalities mentioned above about the M&A, analysis shows that more than 55% of the people will prefer to operate in virtual mode even when the pandemic is over. So a trend shift to virtual deals can also be seen.?Post covid scenario will be completely different. There will be a need for well crafted, bold moves to harness the maximum growth potential. Shifting narratives from conventional M&A to exploring alternatives, clearly points out that this M&A industry will also adapt to new working conditions and will adapt to new normal. Professionals will be ready to explore new domains, meticulously drafting the M&A plans, evaluating alternatives, considering all the pros and cons and finally coming down to a strategy.?