The global M&A market has been growing steadily in recent years based on a strong economy, a booming stock market, and favorable financial conditions. Overall, M&A remains robust, and valuations are high. However, several pronounced trends have contributed to the development of M&A activity:
-
Technology convergence occurs when non-tech companies acquire technology firms and vice versa. Nowadays, it is crucial for most businesses around the world to be technology-driven. For an increasing number of organizations, the answer is to buy rather than build. Acquisitions of high-tech targets have become the instrument of choice for buyers in all sectors looking to boost innovation, streamline operations and processes, shape customer journeys, and personalize products, services, and experiences. More often than not, acquisitions of tech-driven, and especially digital, business models have become the preferred method to acquire needed technologies, capabilities, and products and to close innovation gaps. Though the overall M&A market has grown significantly over the past five years, the share of deals involving a tech target has been rising even faster.
-
Tax reform in the US and lax financial conditions have created more surplus money available for M&A activity. It was anticipated that private equity sponsors would be negatively affected by tax reform, but the fallout has not been as severe as initially feared.
-
Increased activism means that surplus cash could become a red flag for shareholder activists if a company holds on to it for too long. M&A is often the end result, as activists secure board seats and orchestrate share-price gains by agitating for asset sales or acquisitions.
-
M&A across country borders accounted for more than a third of 2017’s deal volume, driven by China’s increasing appetite for international M&A and private equity’s insatiable need to invest.
-
Anticipations of slower growth mean that, with a few exceptions, organic growth will be hard to achieve. While shareholders once looked skeptically at attempts to grow inorganically, they now realize that M&A offers one of the few proven avenues to achieve higher revenues and earnings.
