Upcoming Deal Trends

L’Oreal announced that it had signed a deal to acquire the beauty brand Aesop. Hewlett Packard Enterprise acquired Israeli cloud security company Axis for $500 million. And U.S. midstream company Energy Transfer merged with Lotus Midstream Operations for $1.45 billion. The analysts predict that these and other deals will increase M&A activity in the second quarter of 2023.

But the underlying circumstances hinder deal-making. A yield curve that is inverted – which means that shorter-term instruments of debt offer better yields than longer-term bonds is unsustainable. The increasing rates of interest make it difficult to raise money and shift the focus of a lot of businesses away from M&A. Global volatility continues to deter would-be buyers.

Another driving force that will shape the future of M&A is a growing emphasis on ESG (environmental social, societal and governance) issues. As these issues are incorporated into the strategic agendas of more CEOs, they will likely drive M&A which includes the purchase and sale of assets to reduce their ecological footprint.

The M&A landscape continues to evolve as companies seek partners that are more focused on the primary goal of their business. M&A will continue to expand in industries with disruptions to supply chains that are growing and where vertical integration is needed more than ever. This will include information and communications technology (ICT) as well as medtech as well as fintech, food manufacturing, and the automotive industry. Additionally the trend of consolidation is likely be a common feature in sectors where startup success has led to high valuations. This includes sectors like artificial intelligence and augmented reality, telemedicine and blockchain.

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