Last updated on June 23rd, 2023 at 10:35 am
FDI and cross-border M&A are tools of the trade for companies looking to expand their operations overseas. They are an important source of value creation and provide the means to access new jurisdictions and take advantage of different economic, market and consumer dynamics. The world is not getting any smaller and that means that corporate value chains, in businesses of all sizes, are increasingly global in scope and scale. Companies are no longer as hesitant to pursue growth via overseas markets through partnerships and M&A, and deal making in 2021 will increasingly demand cross-border and cross-cultural skills to reach the closing table.
Over the past 18 months global Mergers & Acquisitions have been on a rollercoaster, dropping vastly during the early period of pandemic, only to rise to new highs once the vaccines were rolled out and restrictions were eased. In the first half of 2021, global M&A deals reached $ 2.5 trillion, almost double of what it was last year. This surge in activity is the result of favourable interest rates, ready access to capital, and many organizations turning to technology and combining with other companies to ensure their digital transformation.
Almost 76% of CEO’s surveyed expect global economy to grow in the next 12 months. They are largely undaunted by macroeconomic concerns around inflation and geopolitical factors such as tax policy, protectionism, and increased regulatory scrutiny. They appear to have a clearer vision of where value creation opportunities exist in current portfolios – and have a sharper focus on M&A strategies to accelerate growth, gain scale, and digitize to reshape their businesses.
Although technology and media are the sectors where sizeable M&A’s have happened, they are not the only sectors. Consumer, infrastructure, energy, healthcare, life sciences, financial services, are also likely to benefit from the push, as consumer interest in green products, and environmental, social and governance (ESG)-focused financial products continue to grow.
Many companies have been strategically resetting themselves coming out of this pandemic crisis and are firmly focused on a new growth agenda. This strategic agility has fueled an optimistic mindset – a clear view of a better tomorrow. It also provided a clear view of how to get by resetting, realigning and restarting with M&A.
They are seeking to acquire innovative startups and tech-enabled competitors to get even closer to their customers and enhance the digital channels that have proved vital for leading companies in the lockdown recession. Restructurings for viable corporates will include the usual mixture of refinancing, debt forgiveness, debt-for-equity swaps, and fresh capital either in the form of debt or equity.
Companies are also navigating a changing global economic and geopolitical environment as the longer-term effects of COVID-19 on the geopolitical environment will crystallize this year. Managing these political risks requires an effective geo-strategy that is comprehensive and involves cross-functional integration of political risk management into broader risk management, strategy and governance. As a result, highly sought-after deals for technology and other innovative capabilities are likely to continue to command a premium.
Consolidation will see strong companies grow stronger, while other companies will use M&A to venture across industries to diversify and expand. M&A can also serve as a catalyst to drive transformative change within the organization to prepare for future complexities.
While good execution planning is imperative, speed and agility continue to be the key differentiators. Ultimately, it’s about people. Organizations that are the most successful in navigating M&A’s murky waters attribute a large part of their success to effective oversight and change management. Being able to adapt and, ultimately, be resilient in the face of adversity is what will differentiate companies that not only survived the Covid-19 global pandemic but also seized the opportunities it presented to thrive and boost prosperity well into the future.
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