September 26, 2022
Can M&A continue to play a significant role for companies and their corporate strategies? Maurits Hesseling unpacks the latest global trends in the M&A market
Record Eurozone inflation of 9.1%, European Central Bank’s first interest rate hike in 11 years, European gas prices hitting an all-time high and seven months of Russia’s ongoing conflict with Ukraine. 2022 has certainly seen an onslaught of gloomy economic headwinds.
Only a few months ago, it was believed that the acceleration in M&A markets was unlikely to slow down, despite these global events and challenges.
Fast forward six months and the economic and political climate is certainly having an effect. Maurits Hesseling, Board Member of Translink International and Managing Partner of Translink Benelux, says that despite the pressures of accelerating inflation, increasing interest rates, the energy crises and the ongoing Ukrainian conflict, M&A continues to play a significant role for companies and their corporate strategies.
M&A as a strategic instrument
“We believe there are better opportunities for companies to invest now because they can get better returns on investment due to the current lower-evaluation environment,” says Hesseling, citing one of the silver linings within the current M&A landscape. “While there are a lot of struggles to contend with globally, there are still many opportunities to use M&A as a strategic instrument.”
“What we are also seeing is that while the number of publicly disclosed deals is indeed decreasing, the quality of deals is increasing. What I mean by this is that companies in the past pursued M&A deals based on the strategy in place. Within this changing environment, buyers are now applying a longer-term perspective, assessing current and prospective risks and how these transactions will help navigate future challenges. In our opinion, we’ve seen better quality deals in the first 6 months of 2022 because of this approach,” he says.
With the recent dramatic spike in natural gas prices appearing to end all hopes of Europe’s inflation battle easing, a heightened focus on the importance of wind and solar-generated power is gaining momentum.
Transitioning from fossil energy to new alternative energy
“There is a strong positive development in terms of energy transition from fossil energy to green energy,” says Hesseling. “The time for new green developmental energies is a great step forward.”
He emphasises that a vital conversation that role players within the European Union are having at the moment is the importance of addressing the discrepancy of renewable prices being linked to escalating gas prices, and the need to keep these separate within European electricity markets.
Whatever the outcome, these challenges and movements within the energy space will no doubt accelerate innovation with the growing need for new alternative energy.
A shift toward reshoring outsourced production
Another trend on the rise within the M&A space sees companies from the USA and the European Union starting to consider reshoring their outsourced production. For companies who rely on outsourced production in the Far East, the turmoil in China linked to COVID-19 and the lockdown of entire cities has further driven this need, as have higher transport costs.
Some companies within this space are now looking at reshoring these facilities and either finding a local player to fulfil this role or actually buying these companies.
“For companies looking to restore production back to the US or the European Union, M&A is an important instrument to speed up and streamline these processes,” Hesseling says.
Regardless of the economic or operating environment, what has become clear is that valuable opportunities for global M&A exist for those companies eager to embark on the journey. A trusted, corporate finance partner is critical in navigating the process.
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