Do you remember where you were on March 11, 2020? Imagine this: the stock market nosedives, a major celebrity (Tom Hanks) announces a COVID-19 diagnosis, the NBA suspends its season indefinitely, and the World Health Organization declares COVID-19 a pandemic. That whirlwind day marked the beginning of five years of unprecedented uncertainty and volatility, and its reverberations have been profound, setting the stage for a transformative period in the global economy and the M&A landscape.
The M&A Market: A Roller Coaster Ride
In the days following March 11, 2020, M&A deal work nearly came to a halt. However, the market proved resilient for the rest of 2020 and 2021. According to PwC’s Global M&A Industry Trends analysis, global deal volume increased by 18% and deal values surged by 94% in the second half of 2020 compared to the first half. Both metrics were also up compared to the second half of 2019. In 2021, global M&A hit record highs, exceeding $5 trillion according to Dealogic data.
Several factors fueled this boom: stimulus funding, lower interest rates, cheap borrowing, available capital, a healthy supply of companies looking to sell, and a desire to acquire innovative businesses with technological capabilities. Sectors like technology, telecom, digital media, financial, industrial and healthcare were particularly hot.
But the deal world is cyclical. After the M&A boom of the early 2020s, we saw a decrease over the last few years in deal activity and valuations due to higher interest rates, inflation, geopolitical tensions, and companies reluctant to sell with multiples down.
Looking Ahead: Predictions for 2030
Artificial Intelligence at the Forefront
AI will continue to be a game-changer in M&A. The pandemic accelerated the adoption of AI, allowing for more strategic decision-making, increased efficiencies, and reduced human error. We have also become more aware of AI’s limitations and the importance of human oversight. While there will be bumps along the way, AI will continue to affect, and possibly transform, all aspects of the M&A process, from sourcing and identifying potential targets to valuations, due diligence, and post-closing integration.
Further, data centers play a crucial role in the deployment and operation of AI technologies, housing the vast amounts of data and the powerful computing resources necessary to train and run AI models. As AI evolves, the demand for data centers will likely grow exponentially. The effects of this demand will be iterative, driving M&A activity in this space and leading to the development of new, more exciting technologies (which themselves may be bought).
The possibility of utilizing artificial general intelligence (AGI) by 2030 presents both exciting opportunities and areas of concern. That is, AGI will not merely play chess—it will be able to demonstrate human-like cognitive abilities across a wide range of activities. If achieved, AGI could revolutionize the M&A landscape—both the clients we advise and the way we do transactions—by providing unprecedented levels of insight and automation. AGI could potentially handle complex negotiations, predict market trends with high accuracy and optimize integration strategies post-acquisition. However, the development of AGI also raises important ethical and practical considerations, including the need for robust governance frameworks to ensure AGI systems are used responsibly and do not exacerbate existing inequalities or create new risks.
The Domestic Semiconductor Market: A Competitive Landscape
The pandemic exposed deficiencies in supply chain logistics, including our reliance on foreign chip production. In response, the United States pushed tax incentives, loans, and subsidies to boost the domestic semiconductor industry. However, many domestic projects face delays, indefinite postponements, and labor shortages, leaving the future of U.S. semiconductor manufacturing in flux.
The EU and China are also investing in their semiconductor industries. But delays, labor concerns, technological obsolescence, potential tariffs, and trade conflicts leave the U.S. semiconductor industry vulnerable to substantial costs, supply chain disruptions, and geopolitical risks. Any shortages and delays could slow down technological development and impact M&A in sectors that rely on semiconductors, such as consumer electronics, cloud computing, automotive, telecommunications, IoT, and AI.
Businesses have learned their lessons from supply chain and manufacturing issues in the early 2020s and are keen not to fall victim again. Self-sustainability is key. Expect companies to pursue M&A of businesses centered around semiconductor capabilities to retain a competitive advantage.
Risk-Based Diligence Approach
The pandemic forced practitioners and businesses to re-evaluate areas of focus in due diligence. Cybersecurity, supply chain, cultural compatibility, and environmental, social, and governance (ESG) issues gained more scrutiny. Given the fluctuating market of the last few years, sustainability is critical today and in the future. While the M&A market is expected to increase in the short term, we don’t expect the market of 2021 to resurface anytime soon. Acquirers will use a risk-based due diligence approach, though possibly made easier with the advancement of AI. Accordingly, more than ever, they will want to ensure they are investing responsibly and in viable businesses, avoiding costly surprises.
Industry Converging Transactions
Sustainability, adaptability, and AI will remain critical components in M&A strategy. We expect companies to target businesses with advanced technologies and capabilities to capture synergies and create value. Cross-sector M&A activity, such as consumer health companies partnering with e-commerce businesses or fintech firms, will become meaningfully more common.
Adaptability Is Key
While it’s hard to imagine an event as seismic as COVID-19, businesses have learned how to react to change. We’ve adjusted to remote work, a return to the office, a changing workforce, a transforming consumer industry, supply chain disruptions, geopolitical events, shifting global dynamics, and more.
The best performers five years from now will be more prepared than they were in 2020 to handle turmoil, adversity and uncertainty. They will separate themselves from the pack by relying on their resiliency to anticipate shifts and risks, develop contingency plans, diversify, develop flexibility and redefine a new normal to create advantages that lead to growth. Strategic, targeted M&A will be imperative in these growth strategies. Those who adapt best to their changing environment will have the best chance of not only surviving, but thriving.
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