Recent Trends and Highlights in Mergers and Acquisitions

In 2023, the global landscape of mergers and acquisitions (M&A) has continued to evolve, shaped by a complex interplay of economic, geopolitical, and technological factors. After intense activity and record-breaking deals, the M&A space is witnessing new trends that reflect the changing priorities of businesses, investors, and regulatory bodies.

Navigating Economic Uncertainties

One of the most significant factors influencing recent M&A activity has been global economic uncertainty. Factors such as inflationary pressures, fluctuating interest rates, and geopolitical tensions have made companies more cautious. Despite these challenges, M&A has remained a key strategy for growth and transformation. Companies leverage acquisitions to diversify their portfolios, enter new markets, and enhance their technological capabilities.

Tech-Driven Deals

Technology remains a critical driver in the M&A space. Companies across various sectors are acquiring tech firms to stay ahead in digital transformation. The focus has notably shifted towards artificial intelligence (AI), machine learning, cybersecurity, and cloud computing.

Notable tech deals for 2023:

1. During the initial seven months of 2023, Cisco Systems engaged in several acquisitions, targeting various cybersecurity technology firms. Among these were Valtix, a private enterprise specializing in cloud network security, and Lightspin, known for its comprehensive system offering complete cloud security posture management (CSPM) for cloud-native resources. Additionally, Cisco struck a deal to acquire Armorblox, a trailblazer in integrating Large Language Models and natural language processing into cybersecurity solutions.
2.  At the beginning of the year,  OpenText completed its $5.8 billion acquisition of software and cybersecurity vendor Micro Focus International, creating a software powerhouse with a broad portfolio of information management and IT security products.
3. On June 26, IBM announced an agreement to acquire Apptio, a company specializing in IT business management and financial operations software, for $4.6 billion. This acquisition aims to enhance IBM’s portfolio in IT management and hybrid cloud services while also augmenting the functionalities of its Red Hat and Watson product lines.
4. Just before its Data + AI Summit in June, Databricks, a leading data lakehouse platform provider, announced its agreement to purchase MosaicML, a developer of generative AI platforms, for about $1.3 billion. The deal was finalized on July 19. Databricks noted that through this acquisition, it aims to empower its customers with the capability to “build, own, and secure generative AI models using their own data.”

Regulatory Scrutiny

Regulatory scrutiny on mergers and acquisitions has tightened, particularly in sectors like technology and pharmaceuticals, where concerns around market dominance and data privacy are high. Governments are more vigilant about ensuring healthy competition and are closely examining deals that could potentially lead to monopolies or compromise consumer interests. This has led to some high-profile interventions, altering the dynamics of deal-making.

ESG as a Deal Catalyst

Environmental, Social, and Governance (ESG) factors are increasingly critical in M&A decisions. Companies are not only assessing the financial performance of their targets but also their ESG credentials. This shift is partly due to growing investor and consumer awareness around sustainability and corporate responsibility.

An analysis by Global Data on the main themes influencing M&A activity indicates that in Q2 2023, the renewable energy sector saw 303 power-related deals announced, amounting to a total value of $25.3 billion. The most significant disclosed transaction within this industry was the $6 billion purchase of Iberdrola Mexico by Mexico Infrastructure Partners.

Cross-border M&A Activity

Despite geopolitical tensions, cross-border mergers and acquisitions continue, albeit with more caution and strategic planning. Firms want to expand their global footprint but are also mindful of challenges such as regulatory differences, cultural mismatches, and political instability. The EU and Asia, in particular, have seen notable cross-border deals, with companies exploring opportunities in emerging markets.

Private Equity and M&A

Private equity (PE) firms have been key players in driving M&A activity. With substantial capital to deploy, these firms seek investment opportunities in high-growth and under-valued companies. The PE strategy is not just about acquiring businesses but also about adding value by enhancing operational efficiencies, scaling innovations, and exploring new markets.

Notable deals this year:

1. Toshiba Corp’s board accepted a buyout offer from a group led by private equity firm Japan Industrial Partners, valuing the company at  $15.2 billion.
2. Qualtrics (NASDAQ: XM), the leader and pioneer of the experience management (XM) software category, announced that it has entered into a definitive agreement to be acquired by Silver Lake, the global leader in technology investing, in partnership with Canada Pension Plan Investment Board (CPP Investments), in an all-cash transaction that values Qualtrics at approximately $12.5 billion.
3. GTCR, a leading private equity firm, announced today that it has signed a definitive agreement to acquire a majority stake in Worldpay (“Worldpay” or “the Company”), a leading global provider of payment processing solutions, from FIS® (NYSE: FIS), a global leader in financial services technology. GTCR will acquire 55% of Worldpay, and FIS will retain the remaining 45% in a transaction that values the business at $18.5 billion.

The Role of SPACs

Special Purpose Acquisition Companies (SPACs) have emerged as a popular mechanism for publicizing companies, offering an alternative to the traditional IPO process. Although the SPAC boom has cooled down compared to its peak in 2021-2022, it remains a viable pathway for companies seeking to enter public markets with a quicker, albeit riskier, approach.

The Healthcare Sector: A Hotspot for M&A

The healthcare sector continues to be a hotspot for M&A activity. The ongoing need for innovative health solutions, the aging population, and the increasing technological advancements in medical care have made this sector particularly attractive for investors and companies.

Recent notable deals:

1. CVS’ acquisition of Signify Health for $8.0 billion (home health and hospice subsector)
2. Mediclinic International’s $7.4 billion acquisition by a consortium of investors (hospitals subsector)
3. CVS’ $10.6 billion acquisition of Oak Street Health, a network of primary care centers for older adults on Medicare
4. Village MD’s (a Walgreens subsidiary) $8.9 billion acquisition of Summit Health-City MD, a provider of primary, specialty, and urgent care services
5. $7.1 billion acquisition of Syneos Health, a multinational CRO, by a private investment consortium including Elliott Investment Management, Patient Square Capital, and Veritas Capital

Future Outlook

Looking ahead, M&A activity is expected to be influenced by several key factors:

1. Technological Advancements: The continuous evolution in technology will drive M&A, especially as companies look to gain a competitive edge through digitalization.
2. Economic Recovery and Stability: How the global economy recovers and stabilizes post-pandemic and amid ongoing crises will significantly impact deal-making.
3. Regulatory Environments: Changes in regulatory policies, particularly concerning technology, data privacy, and antitrust laws, will shape the M&A landscape.
4. Sustainability and Social Responsibility: As ESG concerns become more prominent, companies will increasingly consider sustainable and socially responsible investments.

Complex and Dynamic

The M&A world in 2023 reflects a complex and dynamic environment where strategic imperatives, despite economic and geopolitical uncertainties, continue to drive deals. Companies are cautiously optimistic, maneuvering through the challenges with a focus on technological integration, regulatory compliance, and ESG principles. As we navigate the rest of the year, companies’ and investors’ agility and strategic foresight will be key in capitalizing on opportunities and steering through the potential hurdles in the M&A domain.