How evolutionary forces are reshaping M&A and other transactions
Maintaining growth and delivering value for shareholders hinges on making sense of such complex matters as demographic shifts, technological disruption, geopolitical tensions, and regulatory changes. Corporations, private equity firms and others engaged in M&A, joint ventures and other transactions are therefore increasingly focused on the potential impact of these forces when targeting, evaluating and capturing the full value from a deal.
Given this uncharted territory, it’s important to expand the conversations around these issues and seek insight beyond the typical deals resources.
The pace of innovation is faster than ever, and companies in many sectors are increasing their investments in artificial intelligence, robotics, virtual reality and other emerging technologies powering the Fourth Industrial Revolution. The number of AI startups acquired by other companies in 2017 was up 44% from the previous year and more than five times the number in 2013, according to CB Insights data.
From autonomous vehicles to 3-D printing, technology is revamping the growth possibilities for companies in several sectors, which in turn requires new considerations in deal strategy. For instance, how long before a food delivery company decides to redirect capital from driver training to a drone startup? And the deals process itself is being affected, with technologies such as blockchain having the potential to accelerate and improve parts of the typical transaction cycle.
Globalism, a key feature of the business landscape for most of the 20th century, is being tested by growing protectionism – most notably but not limited to the US. New tariffs and other threats to longstanding alliances are changing America’s relationships with many countries. The Trump administration rejected the Trans-Pacific Partnership and has questioned the value of NATO. Bereft of US leadership, other countries are starting to fill the vacuum. For example, China’s Belt and Road Initiative continues to move ahead, aimed at strengthening ties with European and Asian nations and expanding China’s global influence.
M&A is already being affected, with the US government approving tougher reviews of certain cross-border deals, and other countries considering the same. Disruptions to supply chains as a result of trade wars are leading some companies to reconsider where they invest. This comes as cross-border M&A – especially foreign acquisitions of US companies – is down from the previous year, according to a PwC analysis of Thomson Reuters data.
The biggest overhaul of US tax laws in 30 years understandably alters the landscape for many companies. Most executives said in a PwC survey that tax reform would allow their companies to make strategic investments they previously wouldn’t have made, although the significance is as yet unclear. Along with more cash from lower tax rates, different provisions will affect certain industries and influence deals decisions.
Beyond new federal legislation, lawsuits and court verdicts can affect the broader deals environment. A major antitrust ruling can be a harbinger for similar transactions or make other companies think twice about a big bet. Other rulings, such as granting states greater power to collect sales taxes from out-of-state retailers, could give companies new considerations in due diligence for deals.
Who a company’s customers are and how they behave can drive updates to business models and changes to the company’s growth strategy, including deals. Trends like longer life spans and more people approaching advanced age can drive such transactions as an electronics retailer buying a company that provides smartphones and emergency-response systems for seniors. Millennials’ preference for independent, distinctive brands has also led industry giants to reconsider core strategies.
Within industries, workforces continue to become more varied by age and ethnicity, reflecting a more diverse US population. In PwC’s 2018 CEO Survey, 63% of US executives said they were building trust by discussing diversity and inclusion with employees. Schedules and work locations also are wide-ranging; another survey found 70% of people globally work outside the office at least once a week. Factor in unparalleled connectivity and transience, and some conventional M&A integration models are becoming obsolete.
The collision of different forces that pose challenges and offer opportunities for dealmakers has little precedent. Corporate and private investors traversing this landscape should have a deeper understanding of important trends and a willingness to reassess their deal strategies.
Through New Deal Frontier, PwC will go deeper into each of these areas with research and insight that helps companies, private equity firms and others who are exploring deals recognize the possibilities ahead. How well organizations comprehend this era of significant change and adapt their approach to key transactions is crucial for ensuring the deals deliver the anticipated value.