L’Oreal announced an agreement in April to acquire the beauty brand Aesop. Hewlett Packard Enterprise acquired Israeli cloud security company Axis for $500 million. Also, U.S. midstream company Energy Transfer merged with Lotus Midstream Operations for $1.45 billion. Some analysts predict that these and similar deals will boost M&A activity in the second quarter of 2023.
However, the underlying factors slow down deal-making. A yield curve that is inverted where short-term debt instruments provide higher yields than longer-term bonds is unsustainable. Rising interest rates have made it difficult to obtain loans and are also changing the focus of many companies toward internal initiatives instead of M&A. Global volatility continues to discourage would-be buyers.
Another factor that will influence the future of M&A is a growing emphasis on ESG (environmental social and governance) issues. As these issues are incorporated into the strategic agendas of more CEOs, they will likely be driving M&A, including the purchase and selling of assets to reduce their environmental footprint.
Lastly to that, the M&A scene is experiencing further transformation as companies search for partners that are closer to their core business purpose. Particularly, M&A is expected to increase in the areas where disruptions to supply chains are increasing and the need for vertical integration is becoming more critical. This will include the information and communication technology (ICT), manufacturing, food and automotive industries. In addition consolidation is likely continue in areas where startup successes have led to high valuations. This will include areas like artificial intelligence, augmented realities, telemedicine, and blockchain.
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