In the world of M&A, new trends emerge every year that shape the industry, impacting the way deals are discovered, evaluated, and executed. And as we head into 2024, it’s essential to recognize and adapt to the emerging trends that are taking shape.
Here are four critical areas to consider as we head into next year:
The Role of Data in Informed Decision-Making
Data has become an indispensable tool for successful M&A strategy. While many firms have used financial data to drive investment decisions, recent advances in technology and data collection have expanded the potential for data analysis to create efficiencies in the investment process. PE firms can use tools like SPS to analyze target market deal activity, and even leverage their own internal pipeline data to track the deal activity of relevant intermediaries. Similarly, providers like DealEdge enable PE firms to evaluate deal performance based on investment criteria to finetune their sector strategy. By analyzing data from multiple sources, firms can gain a more comprehensive view of potential targets.
Rise of AI and Machine Learning in Deal Discovery
Artificial intelligence (AI) is revolutionizing how deals are discovered and evaluated. AI-driven platforms are becoming more sophisticated, allowing dealmakers to access vast amounts of data quickly and efficiently. By leveraging advanced algorithms, these platforms can identify potential targets that match specific criteria, saving dealmakers time and resources. Additionally, these technologies can assist in due diligence by accurately predicting financial outcomes and identifying potential risks.
However, the use of AI in M&A is broader than finding potential acquisition targets. Its application can extend further, from identifying specific acquisition criteria to evaluating the risks or benefits of a deal.
ESG (Environmental, Social, Governance) Considerations Take Center Stage
There is a growing focus on ESG factors in M&A decision-making. Companies with robust ESG strategies are becoming increasingly attractive targets as changing investor sentiment drives demand for more socially responsible investments. For example, ESG targets such as carbon neutrality have become a go-to for many companies as the world looks to reduce carbon emissions.
At the same time, there are potential risks associated with the focus on ESG in the M&A world, such as reputational damage if investors fail to consider the environmental impact of a company’s operations before acquisition, or if portfolio companies fail to deliver on their commitments. Dealmakers need to understand and mitigate risks to maximize the benefits of ESG-focused M&A.
Cross-border Deals and Globalization 2.0
Cross-border deals are on the rise, as firms seek to expand their global footprint and tap into new markets. The pandemic has accelerated this trend, as digital transformation has made it easier than ever to conduct business across borders.
These deals can give companies access to new markets and unique assets that may not be available domestically. Consumer products companies in regions of Asia, for example, have used M&A to bolster overseas revenue at three times the rate of domestic revenue between 2012 and 2021. By carefully navigating the challenges and opportunities brought by global M&A, companies can capitalize on the resurgence of cross-border activity.
The M&A landscape is evolving ever-more rapidly, driven by emerging trends such as AI and machine learning, ESG considerations, big data, and cross-border deals. To succeed in this dynamic environment in 2024, dealmakers need to stay abreast of these trends as they evolve and ready to adapt their strategies accordingly. Always the vanguards of development, M&A investors must continue to embrace change and stay ahead of the curve to unlock significant value for their businesses.