Why? Well, there are a few contributing factors we will analyze in this report.
First and foremost, we are squarely in the era of portfolio transformation. Barriers to entry are shrinking in most industries as technology advances and traditional industry structures blur. Seventy percent of our respondents view portfolio transformation as the top item on their boardroom agenda. Companies are now in the regular rhythm of selling assets in order to raise capital to invest in the right technologies and sector adjacencies.
Second, despite nationalism and protectionism, companies plan more cross-border deals than ever before. Technology has made the world a smaller place. Protecting existing customers and finding new ones requires that companies reimagine their geographic footprint.
Third, the rise of private capital is having a significant impact on the markets. Private capital now exceeds public capital. Private equity funds are taking advantage of longer investment horizons to invest more for the medium to long term.
So, as you will see in our report, the pros for M&A outweigh the cons. Also, companies continue to grow more savvy in evaluating deals and will walk away from bad ones. We need to stop thinking about M&A as a boom and bust market. M&A is here to stay — perhaps as the most important tool in redesigning your portfolio.
Key takeaways that help drive better mergers and acquisitions in today’s deal economy
1. Is your portfolio fit for purpose?
Buying and selling can be the fastest way to transform your portfolio and reshape the future direction of your business. Being able to proactively respond quickly to emerging opportunities — and threats — is a must in the warp-speed world of business today.
2. Can you strategically manage your own ecosystem or will the external environment manage you?
The pace of convergence and disruption is compelling companies to look across a broader landscape to understand their relative competitive position. Companies should recognize the new realities of today’s markets and develop new ecosystems to spot future growth opportunities — and identify emerging threats.
3. Are you utilizing tomorrow’s technologies today?
Technology is a transformer. The increasing use of AI, RPA and big data is revolutionizing the way boards assess and optimize their operations — and encouraging them to make bold decisions on what to buy and sell to gain prime market position. Companies need to be certain their strategic decision-making processes enable them to take advantage of emerging technologies.
4. Can your deal strategy navigate the rules or will regulation rule your M&A?
The growth imperative means companies will remain focused on accessing new markets or acquiring innovation. An early understanding of regulatory implications in terms of how you shape the deal — such as subsequent asset sales to meet competition/antitrust requirements — could give you a competitive advantage.
5. Is your future success contingent on your workforce?
With record levels of employment in many leading economies, the war for talent has never been fiercer. The right skills are often in short supply. Reskilling existing workers or hiring contingent workers are options. Using M&A to secure talent is another and executives should be sure that integration strategies secure the most value from human capital.
6. Are you actively managing your stakeholders?
Shareholder activists can be viewed as strategic advisors and their investment is often a sign of potential value. Executives should engage with activists and look to leverage value-creating insights and points of view.
7. Is private equity a competitor or a collaborator?
Private equity funds are investing more and more for the medium and long term. They are also returning to the M&A market with significant purchasing power. Corporate executives should be prepared for increased competition for assets — or be open to collaborating with PE on deals, especially when acquired assets may need to be divested to execute the deal.
8. Does the answer to your growth question lay beyond your national borders?
Notwithstanding rising nationalism and protectionism, companies are planning more cross-border deals than ever before. Executives should remain alert to opportunities outside their domestic market and be prepared to reimagine their global footprint.
9. Is walking away the best deal you ever made?
The deal landscape is highly competitive and the competition looks set to intensify further. But executives are making shrewd judgments based on strategic rationale supported by better information. Today, the use of new tools and technologies to assess available data from multiple sources will determine deal fitness.