M&A in the 20s

A decade of partnerships and deal ecosystems

The Black Swan event of Covid-19 accelerated long-term trends in M&A, with technology driving change and democratising access. Mid-market companies will adopt new technologies to ramp up participation in M&A, and take a more pro-active and strategic stance. As a result, we expect smaller, mid-market deals to become increasingly dominant in the market.

The diversity of deals will also be much greater — we see this as the prevailing development, affecting all aspects of M&A operations. Again, technology is at the root of this transformative change as digitisation blurs the boundaries between traditional industries, sometimes in very sudden and unexpected ways.

This will play out in a number of ways over the decade.

There will be fewer mega-deals

‘Headline M&A’ underperforms when it comes to delivering shareholder value. Steady wins the race. Businesses will increasingly adopt a strategy of continuous or ‘programmatic’ M&A – an agile and alert readiness for new opportunities. Mid-market M&A will learn from this and leverage advancing technologies to pivot toward a more systematic approach.

The balance will shift decisively from ‘scale’ to ‘scope’ deals

As industries become more inter-permeable ‘scale deals’, where a business buys a rival to pursue market dominance or achieve economies of scale, will increasingly play second fiddle to so-called ‘scope deals’ that extend the capabilities of a company.

M&A will increasingly take an outside-in view on potential targets

Most companies still take an inside-out approach to M&A, where the starting point of an expansion strategy is the status quo — the business as is. Such a narrow view of M&A unnecessarily limits opportunities. Companies efficiently scout for growth and new capabilities when they are not held back by legacy. With an outside-in approach to M&A, companies cast their net much wider, with a far broader view of the fast-changing landscape of opportunity.

Deal structures become diversified; deal engineering becomes innovative

In line with the shift from control to collaboration, acquiring 100% of the shares is no longer the obvious choice. The modern M&A deal may result in anything from total integration to a light form of cooperation. In this context, the winners are those businesses that discover how to help each other add value (rather than ‘buy’ that value by acquiring the business outright). Companies should look to find partners in business, rather than targets. This means sourcing deals with a different emphasis.

The exploratory phase gains in speed and depth

Companies and PE firms need tools to source and evaluate a much wider range of potential deals. Even the intermediaries of M&A buyers/sellers can no longer rely on their own networks to pursue the open approach to deal types that is becoming a strategic imperative. This is particularly a factor in mid-market M&A because the number of potential partners is so much higher. In this market segment, businesses in adjacent industries and/or in different geographies are often unaware of each other — and of the potential value synergies between them. Businesses and their intermediaries need more than word of mouth; they need a megaphone — a platform on which to communicate their M&A position.

Dealsuite is one such platform. It succeeds in facilitating deals because members know of each other’s existence through the platform, know what they are looking for and whom to contact.

During the Covid lockdowns, technology increasingly embedded itself in M&A practices of large and mid-market companies. Over 90% of executives expect the fallout from Covid-19 will fundamentally change the way they do business in the years to come. In a post-Covid world, dealmakers will still prefer to meet in person when closing the deal yet the earlier steps in the process — such as deal sourcing — will for the most part happen digitally.

Deal-sourcing solutions must be able to create trust quickly. Of course, trust is not a trend: it is the cornerstone of all M&A. By conducting a thorough vetting procedure and detailing a clear code of conduct, Dealsuite fosters trust, and connections established on the platform form a strong basis for building deals.