Harvesting the Energy of Challenging Headwinds
Across all four sectors, volatility is often the only constant; be it regulatory changes in life sciences, fluctuating commodity costs in the FAB sector, market instability in the financial industry, or the rapid pace of digital evolution. While these conditions have created industry agility, buyers are seeking stability, with volatility driving more activity toward smaller to medium-sized acquisitions and creating new opportunities for more affordable deals.
In life sciences, early-stage biotech assets offer large pharmaceuticals with deep pockets the ability to boost their R&D pipeline9. A downturn in the stock market also makes some of these prospects more attractive, encouraging dealmakers to capitalize on these smaller targets. In the FAB sphere, the e-commerce and online platform markets that achieved rapid growth due to the pandemic are already becoming crowded and subject to consolidation. However, the trend for ethical consumerism that is driving more people to consider the social, economic, and environmental impact of their purchasing decisions is also encouraging organizations to reshape their portfolios by identifying targets that meet these standards.
In the financial sector, as financial volatility exposes distressed institutions, acquisition opportunities are likely to emerge. FinTechs will also remain a key target for banking firms seeking to acquire capabilities and accelerate a digital transformation. However, as interest rates rise and financing becomes more challenging, investors need to unlock the value of innovation, targeting products that offer them enhanced digital capabilities that will improve customer engagement and experience. The same is true in the global technology, media, and communication sector, where dealmakers should focus on technology-enabled transformations that help organizations to meet customer demands more efficiently by driving down cost, speeding up delivery, and increasing automation. With digitally-enabled business models expected to account for 70 percent of new value created in the global economy10, emerging trends within cryptocurrency, disruptive technologies, and artificial intelligence (AI) offer transformative opportunities to revolutionize operations and accelerate innovation.
Solutions for success:
Balance sheet optimization and capital efficiency — Tax insurance and other forms of contingent risk insurance are some of the evolving M&A strategies being implemented in response to emerging trends and changing market needs. Restructurings present considerable tax consequences for businesses that tie up balance sheets. Similarly, the repatriation of money involved in complex cross-border deals creates uncertainty and risk. In the face of challenging global economics, dealmakers can optimize balance sheets by utilizing an extensive range of transaction liability insurance products that help them to transfer risk and leverage access to cheaper insurance capital.
A Holistic Approach to Dealmaking
As transactions become more complex, the frenzy of activity seen in 2021 is unlikely to be replicated on the same scale by the close of 2022 — but the market is still ripe for dealmaking, and deals are abundant for those prepared to rethink their approach.
Against the force of significant headwinds, the nature and breadth of transaction risks are changing. Savvy dealmakers looking to exploit emerging trends and opportunities are employing more holistic strategies, securing risks across multiple business disciplines and functions. Beyond the typical due diligence applied to legal and financial aspects of a deal, many are protecting their value and mitigating risks by expanding due diligence to cover specialties like credit, insurance, people and HR, retirement liabilities, cyber, intellectual property, and ESG.
With a more holistic approach to M&A activity, dealmakers in 2022 and 2023 can realize more positive results at every deal stage — from securing investments to maximizing deal value and driving transaction success.