Mergers and acquisitions (M&A) have long been a fundamental aspect of the American business landscape, driving growth, innovation, and competitiveness. As we progress through 2023, a closer look at recent trends in M&A can provide valuable insights for businesses and investors alike. This article aims to explore these trends, offering a comprehensive analysis of the current state of M&A in the USA.
At their core, mergers and acquisitions are transactions in which two or more companies combine, restructure, or transfer ownership to form a new entity or expand an existing one. M&A can take various forms, including mergers, acquisitions, consolidations, and divestitures.
What is a Merger?
A merger is an agreement between two or more corporate firms, to create a new entity by exchange of shareholding. It is a transaction where two or more corporations pool their resources and operations, and combined to form a single corporation.
It can also refer to an event where the assets and liabilities of two or more corporate organisations are invested in another organisation, which is the merged organisation.
A merger is basically a mutually agreed decision of organizations for the joint ownership of a corporate entity. Merger in simple terms means the combination of two or more corporations into one single organization.
However, M&A activities also come with inherent risks, such as cultural clashes, overvaluation, and integration challenges. Factors such as market conditions, technological advancements, and regulatory environments play a crucial role in shaping M&A trends.
What is an Acquisition?
An Acquisition means the process by which a company purchases another company or gains a majority in another organization.
One firm takes ownership of another corporate firm because of this. Acquisitions are commonly known as Takeovers. An acquisition takes place when an organization’s capital resources are utilized. Such capital resources include debt, cash, stock, etc.
It involves two parties; the acquiring party and the acquired party.
Acquiring party is the one that buys the majority of shares or gains ownership of the acquired company. Acquired party is the one that surrenders their majority of shares or ownership of the acquiring company.
Related Read: All the 9 Steps in an M&A (Explained!)
Historical Context of M&A in the USA
The history of M&A in the United States is marked by several key moments, including the merger waves of the late 19th and early 20th centuries, as well as more recent periods of consolidation in various industries.
Some of the most noteworthy M&A transactions have had significant impacts on the market and shaped the course of American business history, such as the acquisition of Time Warner by AOL in 2000 and the merger between Exxon and Mobil in 1999.
Mergers and Acquisitions Market in 2023
As of 2023, the M&A market in the United States continues to expand, driven by a favorable economic environment, strong corporate balance sheets, and a growing appetite for inorganic corporate growth.
Certain industries are experiencing particularly high levels of M&A activity, including healthcare, technology, media, and telecommunications. Furthermore, the geographic distribution of M&A deals reflects a continuing trend of cross-border transactions and international collaboration.
Recent Trends in M&A
The M&A scenario is never the same in two different industry or niche. It’s always evolving and has several divergent factors affecting it at all times. Here are how M&A is being affected by some of the most strongest trends at present, which are – technological disruption, international mergers, ESG considerations, and private equity.
#1. Impact of Technology and Digital Transformation
Role of Artificial Intelligence (AI) and Machine Learning (ML)
Technology has rapidly evolved in recent years, with AI and ML emerging as transformative forces in the M&A landscape. These technologies are increasingly utilized in various stages of the M&A process, from deal sourcing and due diligence to post-merger integration and performance monitoring.
AI and ML tools can analyze vast amounts of data, identifying patterns and trends that may be difficult or time-consuming for humans to discern. This allows companies to streamline their M&A processes, make more informed decisions, and minimize risks.
Furthermore, AI and ML can help organizations optimize their operations, identify synergies, and enhance the overall value of M&A transactions.
Also, the tech sector is extremely hot for M&A as of now and bringing in billions of dollars worth of M&A deals.
Cybersecurity Considerations in M&A
In today’s interconnected world, cybersecurity has become a critical concern for businesses, particularly in the context of M&A. As companies acquire new entities, they may inadvertently expose themselves to potential cyber threats, including data breaches, ransomware attacks, and intellectual property theft.
To mitigate these risks, organizations must prioritize cybersecurity assessments during the due diligence phase. This involves evaluating the target company’s security infrastructure, data protection policies, and incident response capabilities.
Post-acquisition, companies should take steps to integrate and strengthen cybersecurity measures across the combined organization, ensuring the protection of valuable assets and the minimization of potential vulnerabilities.
#2. Cross-border M&A and Globalization
Influence of Trade Policies and International Relations
The ongoing trend of globalization has led to an increase in cross-border M&A activity, with US companies expanding their reach into international markets. However, trade policies and international relations can significantly impact the feasibility and attractiveness of these transactions.
In recent years, trade tensions between the US and other nations, such as China, have created uncertainty and challenges for cross-border M&A.
Companies must carefully assess the potential impact of tariffs, import/export restrictions, and regulatory hurdles when considering international deals. Furthermore, organizations should monitor ongoing developments in international relations, as shifts in political climates may create new opportunities or challenges in the M&A space.
Emerging Markets as Key Targets
As globalization continues to advance, emerging markets have become increasingly attractive targets for US companies seeking growth opportunities and market diversification. Countries such as India, Brazil, and South Africa offer vast consumer bases, untapped resources, and burgeoning innovation hubs.
When pursuing M&A in emerging markets, companies must be prepared to navigate unique challenges, including cultural differences, regulatory complexities, and potential political instability. However, with careful planning and strategic execution, organizations can capitalize on the tremendous potential these markets offer.
Related Read: Recent Trends in M&A in India
#3. Environmental, Social, and Governance (ESG) Factors
Growing Importance of ESG in M&A Decision-Making
ESG factors have emerged as critical considerations in the M&A process, with companies increasingly recognizing the importance of sustainable business practices and social responsibility. Investors and acquirers are paying closer attention to target companies’ ESG performance, as it can significantly impact the long-term success and reputation of the combined entity.
Role of ESG in Deal Valuation and Risk Assessment
ESG factors can have a direct impact on deal valuations and risk assessments. Companies with strong ESG performance may command higher valuations, as they are often seen as more resilient and better positioned to navigate future challenges.
Conversely, poor ESG performance can expose companies to reputational damage, regulatory penalties, and potential financial risks, ultimately affecting their attractiveness as M&A targets.
To effectively incorporate ESG factors into M&A decision-making, organizations should develop comprehensive due diligence processes that include ESG assessments. This involves evaluating a target company’s environmental impact, labor practices, governance structure, and overall commitment to sustainability.
#4. Private Equity and Venture Capital
Increasing Role in M&A Financing
Private equity (PE) and venture capital (VC) firms have emerged as significant players in the M&A market, contributing substantial financing to support deal-making. PE and VC firms often possess considerable capital reserves, which they can deploy to fund acquisitions, consolidations, and other strategic transactions.
As these firms seek to maximize returns on their investments, they are increasingly focused on identifying synergistic M&A opportunities that align with their portfolio companies’ growth strategies. This trend has led to an uptick in M&A activity driven by PE and VC firms, particularly in sectors such as technology, healthcare, and consumer goods.
Buy-and-build strategies have become increasingly popular among PE and VC firms as they seek to create value through M&A. This approach involves acquiring a platform company and subsequently making add-on acquisitions to expand its capabilities, market presence, or product offerings.
By leveraging their financial resources and expertise, PE and VC firms can support the growth and development of their portfolio companies through strategic M&A transactions. This can ultimately lead to increased market share, enhanced competitive positioning, and higher exit valuations.
#5. Consolidation in Specific Industries
Healthcare and Life Sciences
The healthcare and life sciences sectors have experienced significant M&A activity in recent years, driven by factors such as regulatory pressures, technological advancements, and the need to achieve economies of scale. Consolidation in this space has allowed companies to broaden their product portfolios, enhance their R&D capabilities, and gain access to new markets.
The financial services industry has also seen a wave of consolidation, with banks, insurance companies, and asset managers seeking to achieve cost efficiencies, broaden their service offerings, and enhance their digital capabilities through M&A. In addition, regulatory changes and the rise of fintech have prompted traditional financial institutions to pursue strategic acquisitions to maintain their competitive edge.
Regulatory and Legal Environment
The US regulatory landscape plays a significant role in shaping M&A trends. Key agencies, such as the Federal Trade Commission (FTC) and the Department of Justice (DOJ), oversee M&A transactions to ensure compliance with antitrust laws and maintain a competitive market.
Key US Regulatory Agencies Involved in M&A
Various regulatory agencies in the United States play a crucial role in overseeing and approving M&A transactions, ensuring compliance with laws and regulations, and protecting the interests of all stakeholders involved. The following are some of the key agencies that play a pivotal role in M&A oversight:
- The Department of Justice (DOJ): The DOJ’s Antitrust Division is responsible for enforcing federal antitrust laws, reviewing proposed mergers and acquisitions, and initiating legal actions against anti-competitive practices. The division seeks to ensure that M&A transactions do not result in decreased competition, higher prices, or reduced innovation.
- The Federal Trade Commission (FTC): The FTC is an independent agency that works alongside the DOJ to enforce antitrust laws and protect consumers. The FTC reviews proposed M&A transactions, investigates potential anti-competitive practices, and can challenge deals that it believes may be detrimental to consumer welfare.
- The Securities and Exchange Commission (SEC): The SEC plays a crucial role in the M&A process by regulating the securities markets and ensuring that companies provide accurate and transparent information to investors. M&A transactions involving public companies often require SEC review and approval, with companies required to submit various filings and disclosures throughout the process.
- The Committee on Foreign Investment in the United States (CFIUS): CFIUS is an interagency committee that reviews foreign investments in US businesses to assess potential national security risks. M&A transactions involving foreign investors or acquirers may be subject to CFIUS review, with the committee having the authority to recommend that the President block a transaction or require mitigation measures to address any identified concerns.
Antitrust Laws and Their Impact on M&A
Antitrust laws in the United States aim to promote competition, prevent monopolistic practices, and protect consumer welfare. The following are the primary antitrust laws that impact M&A transactions:
- The Sherman Antitrust Act: Enacted in 1890, the Sherman Act prohibits contracts, combinations, and conspiracies that unreasonably restrain trade or create monopolies. M&A transactions that are deemed to reduce competition, create monopolistic market power, or facilitate collusion may be challenged under the Sherman Act.
- The Clayton Antitrust Act: Passed in 1914, the Clayton Act specifically addresses M&A transactions by prohibiting acquisitions and mergers that may substantially lessen competition or create a monopoly. The act empowers the DOJ and FTC to review proposed M&A transactions and take legal action to block or modify deals that violate its provisions.
- The Hart-Scott-Rodino Antitrust Improvements Act (HSR Act): The HSR Act, enacted in 1976, requires companies involved in certain M&A transactions to submit pre-merger notification filings to the FTC and DOJ, allowing the agencies to review and assess the potential competitive effects of the transaction. Companies must observe a waiting period before completing a transaction, during which the agencies may request additional information or challenge the deal.
Recent changes in M&A regulations and policies have influenced deal-making, with companies adjusting their strategies to accommodate new requirements.
Recent Changes in M&A Regulations and Policies
The regulatory landscape for M&A in the United States is constantly evolving as new laws and policies are enacted in response to changes in the market and emerging challenges. Some recent developments in M&A regulations and policies include:
- Increased scrutiny of technology and data-driven transactions: In recent years, regulatory agencies have placed increased emphasis on scrutinizing M&A transactions involving technology and data-driven companies. This is due to concerns about market dominance, data privacy, and the potential stifling of innovation in the technology sector. As a result, companies involved in technology and data-driven M&A transactions may face heightened regulatory scrutiny and potential challenges to their deals.
- Focus on national security and foreign investment: The US government has been increasingly focused on protecting national security interests in the context of M&A transactions involving foreign investors. The Foreign Investment Risk Review Modernization Act (FIRRMA) of 2018 expanded CFIUS’s authority to review and potentially block foreign investments in US businesses, particularly in sectors deemed critical to national security. Companies involved in cross-border M&A transactions should be aware of potential national security concerns and be prepared to navigate CFIUS review processes.
Challenges and Opportunities in the Merger Market in the US
M&A activities in 2023 are subject to various economic and political factors, including market uncertainties, interest rate fluctuations, and geopolitical tensions. Despite these challenges, M&A activities continue to offer opportunities for growth, expansion, and innovation for companies that can navigate the complexities of the market.
In the face of economic uncertainties, businesses must be vigilant in their due diligence processes and thoroughly assess target companies’ financial health and growth prospects. This helps avoid overpaying for acquisitions and mitigates the risk of post-merger integration issues. Furthermore, geopolitical tensions can create both obstacles and opportunities for cross-border M&A. Companies should closely monitor changes in trade policies and international relations to stay ahead of potential risks and capitalize on emerging opportunities.
Recent Landmark Mergers and Aquisitions in the US
Mergers and Aquisitions in 2023
#1. VMWare to be Acquired by Broadcom (Transaction Value: $61 billion)
Broadcom’s ambitious acquisition of VMWare, initially revealed in May 2022, demonstrates the magnitude of the deal, which is expected to close in 2023. Throughout the latter half of 2022, Broadcom has been conducting due diligence and communicating the advantages of the transaction to VMWare’s customers and partners.
The deal was presented to stakeholders as a unique opportunity to combine VMWare’s multi-cloud solutions with Broadcom’s diverse software offerings, creating a comprehensive solution for managing the increasingly complex IT landscape.
#2. Abiomed Inc. Acquired by Johnson & Johnson (Transaction Value: $18.04 billion)
In November, Johnson & Johnson, the world’s leading healthcare products company, announced its intention to acquire Abiomed, a pioneer in cardiac, pulmonary, and renal support technologies.
The agreed price of $380 per share represents a 50% premium over Abiomed’s trading price at the time of the announcement. Johnson & Johnson aims to establish itself as an innovator in the cardiovascular sector, focusing on addressing the significant unmet need for heart failure and recovery treatments.
Following the announcement, J&J’s stock price surged nearly 8%, indicating investor confidence in the deal’s potential.
#3. Consortium Led by Japan Industrial Partners Inc., Suzuki Motor Corp., and ROHM Co. Ltd. to Acquire Toshiba Corporation (Transaction Value: $16.23 billion)
A group consisting of Japan Industrial Partners (JIP), Suzuki Motor Corp., and ROHM Co. Ltd. is currently negotiating with financial institutions to secure the funds necessary for the privatization of Toshiba Corporation, a globally recognized Japanese technology conglomerate, in 2023.
Toshiba’s diverse portfolio includes nuclear power, defense technology, and microchip manufacturing. However, the potential acquisition could signal the decline of the renowned keiretsu – the once-dominant Japanese conglomerates.
#4. Coupa Software’s Acquisition by Thoma Bravo (Transaction Value: $8 billion)
In December, Thoma Bravo and Coupa Software, a leading cloud-based business software provider, agreed to an $8 billion all-cash deal. Prior to the acquisition, the Abu Dhabi Investment Authority (ADIA) was among Coupa’s prominent shareholders.
The agreed-upon price of $81 per share represented a remarkable 77% premium on the stock’s unaffected price. Coupa Software’s management team stated that after evaluating their options, joining forces with Thoma Bravo provided the most significant benefits, including access to valuable resources.
#5. Advent acquisition of Maxar (Deal Value: $6.4 billion)
In December, news broke that Advent was acquiring Maxar, a space infrastructure and imagery company, in an all-cash deal. At $53 a share, the price paid by Advent represented a 130% premium above where the stock had been trading.
In addition to providing excellent value to the Maxar shareholders, the executive team at the space infrastructure firm said that it would enable them to make vital investments in Legion seven and eight satellites and other technologies under development.
Future Outlook on the Mergers and Acquisitions
As we look to the future, several predictions can be made regarding M&A trends in the coming years:
- Emerging technologies, such as blockchain, quantum computing, and extended reality, are likely to reshape the M&A landscape, influencing the way deals are executed and driving further consolidation in the technology sector.
- The importance of ESG factors will continue to grow, with investors and acquirers placing an increasing emphasis on sustainable business practices and social responsibility.
- Cross-border M&A activities will remain prevalent, as companies seek to capitalize on emerging markets and leverage global supply chains for competitive advantage.
- Regulatory scrutiny is expected to intensify, with antitrust authorities taking a more proactive approach to monitoring and enforcing competition laws.
- Private equity and venture capital firms will continue to play a significant role in M&A financing, as they seek to deploy their substantial capital reserves and capitalize on investment opportunities.
Wrapping it up
In conclusion, understanding the recent trends in M&A is crucial for businesses and investors seeking to capitalize on opportunities in the ever-evolving market. From the growing importance of technology and ESG factors to the increased role of private equity and venture capital, these trends provide valuable insights into the current state of M&A in the USA.
As the M&A landscape continues to evolve, companies must remain adaptable and responsive to emerging trends, challenges, and opportunities. By staying informed and strategically navigating the complexities of M&A, businesses can position themselves for long-term success in a competitive global market.