Key M&A Trends for Success – The Next Wave

Mergers and acquisitions (M&A) activity in India remained robust throughout 2023. However, the margin pressures for varied companies are increasing due to elevated inflammation levels and interest rates. Besides, India’s economy continues to grow annually, from 6% to 7%, in the developed market. This has a direct impact on India’s M&A activity.

Strategic Mergers and acquisitions in India are backed by continued healthy balance sheets and rising domestic demand. It is expected that the activity of the deals will increase because cash-rich conglomerates focus on magnifying their presence in the Indian market. Here, all the Top M&A trends have been stated in the below section for your better insight.

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Top M&A Trends Driving Mergers and Acquisitions Activity

It is anticipated that M&A activity will increase in the year 2024 following a slowdown in 2023. Numerous trends can play an evident role in driving M&A activity. Here, you will get an idea of all the top M&A trends to follow this year.

1. Digital Transformation

As an outcome of AI adoption, digital transformation is considered to be one of the largest M&A trends for 2024. AI (Artificial intelligence) comes with both pros and cons within the financial landscape. It depends on the companies how they will harness the best out of AI.

Besides, artificial intelligence creates a scope of new opportunities for M&A activities. These tools assist companies to determine their potential targets and keep a record of the upcoming challenging deal timelines. As a result, this will upscale the overall pace of M&A activity.

2. M&A Deal Volume Trends

Companies should look for M&A partners who strongly align with their core, as opposed to acquiring targets that are peripheral to their primary business goal. The practice of pharmaceutical companies partnering with biotech companies is a trend worth observing.

Cross-border deals had declined as a result of the epidemic and geopolitical instability. Now there appears to be less resistance to foreign M&A activities. Experts predict a surge in foreign M&A activity as participants team up with foreign companies to get a competitive edge in the supply chain.

3. Small to Midsize Deals Stabilise & Strengthens

Large deals are more likely to be affected by market volatility. Whereas, small deals are free of any impact from such volatility and other external forces. Besides, small deals are less expensive in comparison to large deals.

With small or midsize deals, companies would not need to seek any financing as they will be able to manage their purchases with their existing financial reserves. Moreover, smaller deals are subject to fewer stringent regulations compared to larger ones.

4. Shareholder Activism and ESG as Forces of Change

It has been seen that activist shareholder campaigns have increased by 14% from 2021 to 2022. One must note that common complaints are much needed for operational enhancement. It has been noticed that the total number of campaigns has reached 850 (approximately).

Activist shareholders take advantage of the inflationary headwinds to induce companies to make changes with a correlative increase in M&As. Additionally, M&A activity supports a company’s ESG (environmental, social, and governance) objectives.

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Blueprint for Success in Mergers and Acquisitions

Strategic mergers and acquisitions (M&A) can be a powerful tool for companies to strengthen their market position and weather economic storms. But successfully executing a programmatic M&A strategy, which involves making multiple smaller deals over time, requires careful planning beyond just closing individual transactions.

M&A Blueprints: A Framework for Strategic Programmatic Deals

M&A Blueprints advocate for a deep dive into market analysis and internal self-assessment for business leaders. This approach goes beyond the traditional deal-by-deal mentality and helps executives develop a programmatic M&A strategy that aligns with their long-term corporate goals.

Here are three key questions M&A Blueprints help answer to ensure programmatic M&A success:

1. Strategic Fit: Why does programmatic M&A make sense for our overall corporate strategy? How will these acquisitions contribute to our long-term vision?
2. Target Identification: Where can we leverage programmatic M&A to address specific strategic needs? What types of companies or technologies are the best fit?
3. Goal Alignment: How can we best structure and execute programmatic M&A deals to achieve our desired outcomes? This involves a focus on integration planning and ensuring acquired assets contribute to synergy and value creation.

By addressing these strategic questions upfront, companies can develop a programmatic M&A approach that fosters resilience and drives sustainable growth.

Understanding the ‘WHY’ and the ‘WHERE’

Through self-assessment, you can identify gaps in corporate ambition and evaluate prospects for M&A to address these gaps. This process involves examining the competitive advantages of a company’s key sources. Besides, it includes testing the company’s scalability to determine whether it would still act as the company’s advantage after the transaction.
For its part, the market assessment acts as a “sense check” for executives in the business world, guaranteeing that the M&A strategy of the company takes advantage of the latest relevant trends, anticipates any disruptions, and acknowledges the anticipated actions and responses of competitors.

Understanding the ‘HOW’

Business leaders are also prompted by an M&A blueprint to create a plan for “how” they want to make use of M&A, to expand their overarching business ambitions. For every M&A topic, the blueprint must have a detailed description of the high-level business case and first integration strategies.

Within a specific M&A topic, the business case should outline how the acquiring company plans to bring value to the target/targets, including the capital and operating expenses (beyond the acquisition price) needed to integrate and scale the asset/assets.

Case Studies of Successful M&A Deals

• Tecnova advised a Danish facilities management company for the acquisitions of 5 Indian companies and consolidation in one company

• Tecnova assisted a French diagnostic solutions company in acquiring a majority stake in a leading Indian Biotech company

• Tecnova advised an American packaging giant in acquiring a 70% equity position in the Indian target company and its subsidiaries, making their first industrial presence in India
  
• Tecnova assisted a Norwegian packaging company in acquiring 50% equity in the aseptic packaging business to deliver sustainable packaging solutions to consumers pan India
  

Challenges and Risks in Mergers and Acquisitions

It has been noticed that almost 50% of all Mergers and acquisitions transactions have been cited as failed deals. Several factors can emerge as problems during M&A. One must note that even large companies and businesses fail to overcome those problems.

For better insight, below are some of the most common challenges and risks one can come across in M&A. Below are all of the potential solutions for the risks.

1. Lack of Due Diligence

For an M&A, due diligence holds importance as it allows the acquiring company to discover facts about the seller like insurance, employment contracts, contribution agreements, liabilities, and others. Having adequate knowledge about these details is essential because it affects the buyer’s decision-making.
Poor due diligence can result in inaccurate valuation which will raise a serious problem. Besides, it increases the risk of sudden tax issues or litigations for the buyer along with hampering their financial reputation.
Therefore, a buyer should start with the process early with a team of professionals with adequate legal and industry-based knowledge.

2. Integration challenges

One of the most crucial and critical parts of an M&A is integrating processes and workforces. In order to decrease the entire complexity, one must have a solid post-merger integration (PMI). This process of PMI brings the merged companies together which will eventually maximize the synergies.
In addition, it helps in assuring that the deal generates its estimated value sooner. An inaccurate PMI process leads to increased turnover, low customer and employee engagement, and erodes sales and profits. Besides, the buyer might miss its cost target and business growth.
Companies achieving proper PMI can provide 6% to 12% higher returns to shareholders. Henceforth, implementing accurate post-merger integrations is important.

3. Unexpected issues related to costs

Before getting the desired cost savings from the merger, companies might experience unexpected hikes in costs in the short term. There are several fees that together add up to an M&A cost like legal fees, advisor fees, investment banking fees, and others.
The cost of PMI and due diligence impacts the value creation capability of a deal. Henceforth, a buyer should plan ahead to avoid any unexpected surprises related to costs. In addition, buyers should consider adopting a flat rate pricing model along with using M&A and managing platforms to minimize the scope of redundant work.

Some of the other challenges of M&A:

• Overestimating possible synergies
• Overpaying for the target company

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Reach out to One of the best Merger & Acquisition Consulting firms in India

The M&A landscape in India for 2024 reflects resilience and strategic adaptation to economic challenges. Digital transformation, stability in small to midsize deals, and the impact of shareholder activism and ESG considerations are crucial top Mergers and Acquisitions trends shaping the sector. The future outlook for M&A activity appears promising, driven by evolving market dynamics and strategic imperatives.

Therefore, feel free to reach out to Tecnova. We are among the top mergers and acquisitions consulting firms in India, dedicated to effectively assisting you with your M&A needs.

Reference

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Mergers and Acquisitions: Current Trends in India

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