L’Oreal announced a deal in April to purchase 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 tune of $1.45 billion. Analysts predict that these and other deals that will be announced in the second half of 2023 will jolt M&A activity.
But underlying conditions are still slowing the process of negotiating. Inversion of the yield curve, in which short-term debt instruments have higher yields than bonds with a longer term is not sustainable. Rising interest rates have made it less attractive to borrow money and also shifting the focus of many firms to internal initiatives rather than M&A. Global volatility continues to deter would-be buyers.
A growing attention to ESG issues (environmental Social and Governance) is another factor that will shape the future of M&A. 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 continues to evolve as companies seek partners who are closer to the core objective of their business. In particular, M&A is expected to increase in the areas where disruptions to supply chain processes are increasing and the need for vertical integration is growing more urgent. This will include the information and communication technology (ICT), food, manufacturing and automotive industries. Additionally consolidation is likely continue in areas where startups’ success has resulted in high valuations. This includes areas such as artificial intelligence, augmented realities and telemedicine, as well as blockchain.
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