L’Oreal announced the signing of a deal in April. purchase the beauty company Aesop. Hewlett Packard Enterprise acquired Israeli cloud security company Axis for $500 million. Additionally, U.S. midstream company Energy Transfer merged with Lotus Midstream Operations for $1.45 billion. Analysts predict that these and other deals coming up in the second half of 2023 will increase M&A activity.
However, the underlying conditions are slowing the process of negotiating. Inversion of the yield curve, which means that short-term debt instruments have higher yields than bonds that are longer-term is unsustainable. The rising interest rates make it harder to raise money and shift the focus of a lot of businesses away from M&A. And global volatility continues to discourage potential buyers.
Another factor that is shaping the future of M&A is a growing focus on ESG (environmental social and governance) issues. As these issues are incorporated into the strategic agendas of more CEOs they will likely be driving M&A, including the purchase and selling of assets to reduce their environmental footprint.
The M&A landscape is constantly changing as companies search for partners who have a closer relationship to the objective of their business. Particularly, M&A is expected to continue to increase in sectors where disruptions to supply chains are increasing and the need for vertical integration is becoming more acute. This will include information and communications technology (ICT) and medtech and fintech, food manufacturing, and automotive industries. Consolidation is also expected to continue in industries that have seen high valuations due to the rise of startups. This will include areas like artificial intelligence, augmented realities, telemedicine, and blockchain.
