As 2018 came to a close, dealmakers saw the third-strongest year on record for M&A activity, up 20 percent from the previous year. Reuters reported USD 3.91 trillion in announced transactions last year, globally. Deal activity over the past year…
As 2018 came to a close, dealmakers saw the third-strongest year on record for M&A activity, up 20 percent from the previous year. Reuters reported USD 3.91 trillion in announced transactions last year, globally. Deal activity over the past year illustrated that companies are no longer looking at just cost synergies and consolidation – M&A has also become means to acquire proprietary technology, insurgent brands, new age business models and entry into new markets. This fundamental shift in M&A is most prominent in the technology sector with buyers from both within as well as outside the industry prospecting for deals. Indeed, nearly 60 percent of disruptive technology acquisitions in the past year have been carried out by non-tech companies.
In its 2018 Future of the Deal publication, Deloitte reported that 30 percent of the S&P global 1200 companies engaged in disruptive M&A or CVC investments between 2015 to 2017. What is interesting to note is that ‘disruption’ and disruptive M&A is no longer limited to digitally-based targets. Bain’s 2018 M&A review identifies these transactions as scope transactions – acquisitions that will enhance capabilities and enable companies to access new markets. According to the report, scope deals outnumbered scale deals for the first time in 2018, as acquirers moved to find growth through new capabilities in new geographies and target markets. Global strategic acquirers are especially drawn to the prospect of growth within emerging markets, bolstered by a significant increase in consumer spending in these markets. For instance, Walmart’s acquisition of Flipkart, an Indian e-retailer, gave it access to one of the largest consumer markets. India is well on its way to becoming the third-largest market in the world, with consumer spending expected to grow from USD 1.5 trillion at present to nearly USD 6 trillion by 2030, according to the World Economic Forum. Similarly, Nestle’s majority acquisition of California-based Blue Bottle Coffee reflects a larger shift in consumer preference towards organic and artisanal coffees.
Scope deals have accelerated significantly over the past three years, representing about 15 percent of all strategic deals in 2018. In the German automotive sector, the M&A focus is being driven by disruption across the value chain. Suppliers are looking to modernise their products amidst a renewed focus on electric vehicles and connected cars. Deloitte reported that megadeals will also be driven by companies undergoing disruptive transformations, while other smaller deals will be aimed at acquiring specific capabilities. In 2018, capability M&A represented approximately 15 percent of all strategic deals valued at over USD 1 billion, compared to 2015 when it represented 2 percent of strategic acquisitions. Scope deals have enabled companies to respond to disruption and growth challenges and this could likely become the norm in years to come.
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