December 12, 2023
Cross-border deals are likely to be the first to recover in 2024, once inflation stabilises and the mergers and acquisitions (M&A) market rebounds, according to Translink Corporate Finance’s ‘2024 Megatrends Report’. Featuring insights from global Translink partners, the report identifies six top trends that will shape the M&A landscape in 2024 and beyond. In an increasingly uncertain world, the new frontier of M&A activity, cross-border M&A, presents compelling opportunities for diversification – mitigating risks, bolstering resilience, and broadening opportunities.
Market movement highlights discussed in the report include:
- Resilience and recovery of cross-border deals: Cross-border deals will be the first to rebound in the M&A market once inflation stabilises. Amid rising inflation and geopolitical instability, international deal numbers have surpassed domestic ones.
- Drivers of cross-border dealmaking: The COVID-19 pandemic has been a significant catalyst, pushing companies to adopt cross-border strategies for a diversified market presence and effective risk mitigation.
- Emerging markets and geopolitical alliances: Key markets to watch include India for its technology and services sectors and Morocco for its industrial potential. The geopolitical alliances likely to influence cross-border M&A include increased activity between the EU and the US and between Latin America and North America.
Factors driving cross-border dealmaking recovery in 2024
In a year where several factors – from geopolitical instability and unrest to rising inflation and interest rates – have stalled dealmaking, cross-border deals have decreased less than domestic ones. The perfect storm of factors has generated more interest in these deals as players seek to grow and amplify their tech capabilities, diversify, and capitalise on economic scales. This means cross-border dealmaking will likely be the first to recover when inflation improves and the M&A market rebounds.
Llaudet says, “COVID-19 had a significant impact on cross-border dealmaking. Firstly, it convinced owners to consider selling in the small-to-medium market. This created an opportunity for larger companies to acquire targets that previously weren’t for sale and urged many companies to explore cross-border strategies to establish diversified market presence. In the face of potential extraordinary and unexpected situations in the future, a diversified presence enhances resilience and strengthens one’s position, and effective risk mitigation is the cornerstone of this approach.”
Translink’s report reveals that, in addition to these factors, cross-border deals will help companies:
- Enable tech and data integration: Collaborating with international counterparts facilitates the exchange of technological know-how, innovation, and best practices, allowing companies to stay competitive in a rapidly evolving landscape.
- Capitalise on economies of scope: By enhancing client and supplier portfolios, companies can increase revenue and income and reduce costs.
Markets to watch
Translink anticipates that, as the global landscape of cross-border M&A evolves, certain markets will emerge as significant players:
- India’s role: India, with its skilled workforce and focus on technology, telecommunications, and services, is a strong contender in the global manufacturing sector. Despite some regulatory challenges, India’s influence in these sectors is substantial, and Translink expects a notable increase in both inbound and outbound acquisitions.
- Morocco’s emergence: Morocco is another market to keep an eye on, owing to its advancing industrialisation, high safety standards and overall development. The country is positioning itself as a critical industrial hub in the future.
- Intercontinental dynamics: Translink also expects increased M&A activity in Latin America and North America, driven by geographic proximity and shared trade interests. In the Asia-Pacific region, China and India will become central investment hubs, influencing sectors such as e-commerce, healthcare, and manufacturing. China’s involvement in Africa, mainly related to natural resources, is set to continue and expand.
Llaudet adds, “Translink will continue to do most of its cross-border dealmaking in Europe and anticipates increased deals between the EU and the US. Furthermore, the EU and UK are likely to engage in increased dealmaking, driven by Brexit, prompting UK companies to establish a presence in European countries.”
Cross-border considerations for CEOs
Translink’s report reveals that in the evolving landscape of cross-border M&A, CEOs must navigate a complex array of strategic considerations. One critical aspect is the increasing trend of strategic government protection of specific sectors such as energy, pharmaceuticals, and telecommunications.
An example is the Spanish government’s decision to limit foreign investment in industries, restricting Saudi Arabia’s stake in Spain’s largest telecommunication company to 10%. Such moves underscore the strategic importance of these sectors to national economies and security.
Another area of concern is the management of natural and mineral resources. Globally, these resources are often subject to strategic protection, especially in smaller, developing nations. Here, larger and more developed countries may have opportunities to capitalise on these resources, influencing the dynamics of cross-border M&A activities.
Sectors poised for cross-border M&A growth
The landscape of cross-border deals will experience heightened activity in areas ranging from technology and healthcare to renewables and consumer goods. In the mid-market segment, Translink expects strong activity in the industrials sector.
Over the past year, Translink has advised on a number of significant cross-border deals that illustrate these prevailing trends. In March 2022, the industrial sector witnessed Soprema Group’s acquisition of Gecol, a transaction that spanned Spain and France. This was followed by a significant move in the consumer discretionary sector in December 2022, with Germany’s Fielmann acquiring operating subsidiaries of MFI, a vertically integrated health and safety group based in Spain. The industrials sector saw further activity in January 2023, with Italy’s Pedrollo Group acquiring a majority stake in Spain’s Saci Pumps.
Llaudet concludes, “As we navigate through a period marked by significant challenges and transformations, the insights from our 2024 Megatrends Report illuminate the path forward in cross-border M&A. The landscape is evolving rapidly, but with these changes come unprecedented opportunities. At Translink, we stand at the forefront of this rebound, partnering with our clients to help them leverage technological advancements and thrive in this new frontier by embracing strategic diversification.”