Addressing Risks is Critical in a Deal-Hungry M&A Market

Addressing Risks is Critical in a Deal-Hungry M&A Market
January 2, 2024 4 mins

Addressing Risks is Critical in a Deal-Hungry M&A Market

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Senior executives aren’t letting a tough market for transactions stop them from finding new approaches to closing deals.

Key Takeaways
  1. Market conditions are challenging, but not hindering transactions as business leaders forecast an increase in M&A activity.
  2. Dealmakers have diversified their transaction strategies in response, identifying ways to unlock potential in the M&A market.
  3. Securing deals in this environment can open doors to unique risks, requiring development of mitigation practices.

Getting transactions over the line in the current mergers and acquisitions (M&A) environment can be tough. Dealmakers are squeezed from all sides by macroeconomic volatility, market dislocation, challenging financing conditions and increased regulatory scrutiny.

Despite these hurdles, respondents to Aon’s latest Risk in Review forecast an increase in M&A activity over the coming 12 months, indicating an eagerness to get deals done amid difficult conditions. Senior executives from corporate development teams, private equity firms and investment banks are galvanized by long-term trends that are pushing M&A into new territories. Digital transformation, for instance, is driving dealmaking in the technology, media and telecom sector. It is also helping environmental, social and governance (ESG) factors climb up the public policy ladder and onto corporate agendas.

Managing Market Forces

While there is optimism in M&A forecasts, senior executives are not overlooking the impact of challenging conditions on dealmaking. In fact, 72 percent of Aon’s survey respondents expect financing conditions to worsen.

In response to market pressures, approaches to M&A are evolving.

1. Location, location, location: Dealmakers are narrowing their focus on core sectors and geographies, with 64 percent identifying North America as one of the most attractive regions for deals.

2. Mindset shift: M&A strategies are evolving. Thirty-four percent of respondents indicate they will increase their focus on alternative investments, and 32 percent will turn to minority deals and joint ventures.

3. Changing strategies Dealmakers are turning to alternative financing sources, with private equity up 64 percent and non-bank lending up 38 percent.

4. Rising risks: Executives are paying more attention to key risks facing transactions. Ninety-six percent of respondents expect ESG scrutiny in deals to increase over the next three years and 86 percent would abandon a deal if they uncovered a material cybersecurity risk.1

A Drive for Dealmaking

Market uncertainty aside, dealmakers remain upbeat about the health of the M&A arena overall. Forty-six percent of Aon’s Risk in Review respondents expect the number of deals globally to increase over the next 12 months compared to 2022.

In this deal-hungry environment, respondents will be looking for opportunities to explore distressed business and integrate divestments and restructuring into their strategies. Transactions like this can come with significant risk. To prepare, executives should adopt strong due-diligence programs across key risk areas, including cybersecurity and workforce resilience. They should also develop a robust risk transfer strategy that leverages transaction insurance capital.

Despite emerging risks, these deals also provide opportunities to invest in technological and digital capabilities, as well as ESG ventures. They bolster bullish dealmaking prospects in several sectors, including telecommunications and digital technologies, industrials and chemicals and renewable energies. Prudent investors who capitalize on current conditions and stay ahead of developing trends will find pathways to success.

Explore the latest M&A Risk in Review to learn more.

Aon’s Thought Leaders
  • Gary Blitz
    CEO, M&A and Transaction Solutions, Global
  • Alistair Lester
    Global Co-CEO of M&A and Transaction Solutions

46%

of respondents expect the number of deals globally to increase over the next 12 months.

Source: Aon’s M&A Risk in Review, 1H 2023

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