Home The C-SuiteChief Information Officer (CIO) Digital Strategies Are Likely to Sustain the Merger & Acquisition Market

Digital Strategies Are Likely to Sustain the Merger & Acquisition Market

by internationaldirector

Written By: Susan Smithfield – Corporate Finance

The year 2016 was not a record-breaker for deal activity in the global banking and capital-markets space. Even though the industry’s underlying fundamentals remained relatively unchanged, the operating environment became much tougher. In 2016, deal value and volume remained relatively stable compared to 2015. The continued regulatory pressures combined with various geopolitical and economic events, such as the US election, Brexit and the economic slowdown in China, all created uncertainty that lingered over global markets and kept investors cautious.

In 2017, the trend of M&A (mergers and acquisitions) seems to be better oriented. Corporate executives are maintaining their investment and hiring prospects in a highly political context. Companies need to conduct mergers and acquisitions to accelerate their growth and transformation. They have liquidities to invest.

The macroeconomic environment should be favourable, with global growth expected to increase and with attractive financing conditions (availability of finance, low interest rates, positive stock-market valuations). Some uncertainties remain, however, linked to the political context, exchange rates and prices of raw materials. And results reported by Mergermarket’s 2017 Q1 Global M&A Trend Report show that global M&A deal-making so far has remained resilient in the face of an uncertain year, with 3,554 deals worth US$678.5 billion announced in the first quarter, representing an 8.9-percent increase in value compared to the same period last year (4,326 deals, $622.9 billion).

The M&A playground is the world.

With those deals, the companies’ trend toward spreading their activities and partnerships all over the world appears to be profound. Cross-border M&A deals are rising, according to Dealogic’s Q1 2017 report, with $317.6 billion in the first quarter 2017, the second highest first-quarter volume on record globally, behind 2007 ($358.0 billion). Recently, the deal of British American Tobacco Plc acquiring Reynolds American Inc was the largest of the quarter, worth $49 billion, and is a good illustration of world consolidation of big players.

In Europe, the political climate raises some uncertainties, leading to more specific attention to each and every transaction, but still M&A deals have grown in amount. US dealmakers had a strong quarter investing in the European continent, with 150 deals worth $55.7 billion, up 16 percent by value compared to first quarter 2016 (Mergermarket’s 2017 Q1 report). At the moment, the new US administration’s foreign-policy shift has not yet hampered overseas buyers.

At the opposite end, Chinese investors are facing a slowing trend in their investments abroad, as the Chinese government strengthened since the beginning of the year the regulation on foreign investments to limit capital evasion from China.

M&A deals do not look exactly the same as those of years before.

Globally, the average size of disclosed value deals ($403 million) reached its highest first-quarter level on Mergermarket’s record since 2001. Nine recorded mega-deals (>$10 billion) were reported. The trend toward fewer deals in number but higher value is mentioned by all specialists who follow M&A markets. Higher prices mean that companies are ready to take higher risks. Under the assumption that more due diligence is performed by buyers, it means that the strategy is cautiously and clearly defined at the highest level of the group.

The world is definitely the playground, but another very clear trend in strategical motivation is the acceleration of digital transformation. Established, “traditional” businesses still need to reinvent themselves to survive and to be able to compete at the world level. And that process often means deals.

The digital transformation needed by all of the US retail industry is just one of the numerous examples: in the first quarter alone, nine US retailers filed for Chapter 11 bankruptcy (as many as in all of 2016). The survivors will probably choose to shift rapidly to growing online markets, using M&A as much as possible to win time and jump into the digital world with an already existing structure. As in other sectors, technology could help them modernize. For retail, it could mean making the location-based shopping experience more attractive, from putting virtual fitting rooms in clothing stores to making sure popular items are always in stock. Beyond revenue growth, the traditional business-oriented companies are looking for M&A to attract new talent or improve customer experience and loyalty.

In a Deloitte report titled “Fueling growth for innovation”, it is estimated that globally companies spent $291 billion in 2016 on disruptive innovation-related M&A deals, a fourfold increase over the $72 billion spent in 2012. Deloitte mentioned that in the Internet of things (IOT) segment, which is about making intelligent, digitally enabled and connected products, $86 billion’s worth of deals were announced in 2016, and in the digital-and-analytics segment around $46 billion’s worth were announced.

M&A deals are definitely worldwide and oriented towards new technologies. The goal is to obtain technological breakthroughs rapidly. M&A deals are spreading in all sectors, ranging from the automation of industrial processes to the Internet of objects, artificial intelligence, robotics or fintech.


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