Macro Trends Transforming Business—and Impacting M&A

I think most of you would agree that we’re in a transformative age for business. We’re seeing shifting expectations from shareholders and stakeholders, rapid technological innovation, and political and geopolitical movements that are all impacting how businesses are run—and what they need to do to stay resilient and compete long term.

These macro trends are causing many organizations to reassess their current business models and determine how they need to transform as companies to keep up. That often means looking at internal restructuring to ensure your organizational structure can better meet future needs, acquiring another company to help bulk up needed capabilities or divesting non-core assets to better align with your strategy, given these long-term trends.

I want to break down three of these macro trends that are causing business transformation and where the opportunity is for M&A, restructuring, and transformation.

1.     ESG

The first macro trend we’re seeing have a major impact is the increasing focus on sustainability and ESG. Some of this is due to stakeholder pressure, some is due to government regulation or legislation, and some is simply due to market changes or needing to ensure long-term resiliency with a changing climate and energy landscape.

As part of this, there are multiple ways that organizations are looking to shore up sustainability or energy resiliency—often through restructuring or M&A. For example, back in February 2021, ExxonMobil announced that it was creating a new business unit focused on low-carbon solutions. Restructuring the company to create this standalone business unit allows the company to better allocate resources toward both its traditional and its carbon capture business to better diversify its revenue streams.

The activity goes beyond just the energy industry as well; in September 2021, Caterpillar acquired a carbon capture technology company. The acquisition allows Caterpillar to offer buyers of their industrial and construction machinery a way to help reduce their greenhouse gas emissions, meeting increasing demand from clients.

Both moves help those organizations diversify their business and build resilience for the future as energy consumption and climate goals shift.

2.     5G

One of the advanced technologies that has the most near-term potential impact is 5G. Right now, a majority of CXOs (56%) say their company’s current networking infrastructure is preventing them from taking advantage of other advanced technology—such as AI and big data analytics—that have the power to create new business models. As more and more of these companies invest in 5G networks, it might require restructuring or business transformation to take advantage of those new capabilities and business models.

We’re seeing this in a whole range of industries. One of the most obvious is the entertainment industry, where media companies are already reorganizing internally to better focus resources on streaming investments. We also see major M&A activity as it relates to the gaming industry. As 5G technology enables more complex content to reach users more quickly, tech and entertainment companies are looking to integrate advanced graphics and interactivity capabilities into their current portfolios—and are often acquiring gaming companies to do so.  Look no further than Microsoft’s announced acquisition of Activision Blizzard in early 2022. Microsoft has stated that they hope to leverage the gaming company’s expertise to expand into mobile cloud-based gaming – a new opportunity for them that 5G helps unlock.

5G has the potential to impact industries beyond just entertainment. Our Smart Factory is a great example of how 5G can unlock new technologies in an industry like manufacturing—including incorporating fully autonomous mobile robots. As the way a business operates changes—like introducing new automated capabilities—it unlocks opportunity for restructuring or business transformation to better capitalize on those changes.

3.     Supply chain disruption

The last few years have made it clear how much our supply chain is reliant upon international relationships. This has caused a number of U.S.-based or international organizations to rethink their own business operations. When a market is no longer open—or there is the threat of a market closing in the future—many times the answer is to acquire capabilities elsewhere, or restructure to ensure future resiliency.

For example, many companies have made supply chain acquisitions over the past few years as they looked to protect or diversify supply chains. For instance, Maersk, which completed its acquisition of an airfreight company this summer to provide more options to better enable their customers’ supply chains. Other organizations are looking to vertically integrate so they rely less on third-party partners—many of which are based overseas. American Eagle Outfitters purchased a logistics company in 2021 to help manage inventory between stores and e-commerce fulfillment, and Sherwin-Williams is acquiring a coating ingredients company to bring more of its supply chain in-house.

For a macro example of this, look at the CHIPS Act, which was just signed into law. The law is focused on investing in semiconductor manufacturing in the U.S. to help build future resiliency, spurred by the supply chain issues set off by international COVID lockdowns and manufacturing slowdowns. How is that investment changing an organization’s opportunities? How might you need to transform your internal business to take advantage of it?

ESG, 5G and supply chain disruption are just three examples of macro trends that are spurring major transformations. Where there are major shifts in the market or disruptions in industries, I would encourage leaders to think about what they need to do to take advantage of it. Oftentimes, the answer is M&A or restructuring. The near-term might involve more change or disruption, but those types of major business model transformations can help set your organization up for long-term success.