As the seasons change, so does the investment and political environment that the M&A markets face for the remainder of
2018 and well into and beyond 2019. Whether you brand these trends as threats, opportunities or otherwise, each of the
issues below will impact the M&A world:
1. Politics and tariffs: Politics (either way the pendulum swings) and national and global volatility or stability will affect
every decision. As the tariff implementations ratchet upward, willingly or not, the impact on all markets will be evident,
effectively stalling discussions and action in the M&A markets. Those willing to act may create true added value. This
applies in all directions of cross-border deals and investments.
2. Regulations and policies: The current trend is to ease regulations. The SEC is seeking to reduce the burden of
compliance and reporting while expanding opportunities for more private investment opportunities. The trends and
changes will affect many sectors.
3. Interest rates: As the Federal Reserve Board seeks to dissemble the bond-buying programs under QE II and other
programs, all market participants will be casting a wary eye on the impact of interest rate changes as the strategy unwinds
and its impact on capital market liquidity unfolds.
4. TCJA: While growth after the tax legislation has been robust this year, will the impact of limits on the deductibility of
interest lead to a slowdown and a search for more expensive capital? As Aswath Damodaran states, “No matter what you
think about the tax reform package, there is the one thing that is not debatable: it will impact equity value [not EBITDA]
and affect corporate behavior in the coming year.”
5. Technology: Whether it is blockchain, AI, cybersecurity or IoT, technology continues to impact strategic decision
making. While some technologies may not result in creative disruption, they will create change across traditional industries
and how M&A is strategized, structured and executed.
While these issues are not all inclusive, nor are they independent from each other, they represent several of the risk
considerations for the M&A landscape.
Predictions for 2018 and beyond
Mega-mergers will lessen for two reasons. Cost/expense cutting is arguably short-term in nature and not necessarily a
value add over the long term, and the culture thing—the ability to assimilate, integrate and grow—is critical to the overall
success of these efforts. The jury is still out on this for many companies. Industry consolidations are beginning to narrow,
and governments are focused on fair trade.
We will see more platform acquisitions. This will include not just initial acquisitions seen in the PE world but those by larger
companies seeking new business models. Consider Aeon’s acquisition of Boxed. Add-ons currently dominate M&A activity.
More opportunities will arise for platforms with the next downturn.
We will see reverse platform acquisitions. These are acquisitions in which the incumbent is not only seeking a platform/
product but is using its platform to extract more value. Consider Amazon’s robust logistics and data capabilities married to
the Whole Foods platform and the resultant value add.
These are interesting times, during which the ability to adopt, translate and integrate technological advances will drive
action in the M&A market. Additionally, the need to understand organizational culture and recognize its impact on
integration will continue to play its ever-present role in successful M&A activity. Finally, the ability to withstand and
overcome external environmental and political forces will play an ever-important role in 2019.
Click here to read more in the ACG New York 2018 PE Year in Review.
Wednesday, April 24, 2019 | 7:30 AM – 9:30 AM EDT | The Hartford Club