Mergers and Acquisitions, or M&As for short, have long been bases of corporate tactics, through development and diversification, among many other factors that impact competitive advantage. The origination stage, whereby the potential transactions are identified and pursued, is very critical to most successful M&A outcomes. In recent years, technological advances, sector-specific trends, and innovative strategies have greatly altered the very landscape of M&A deal origination. The report discusses the positive dynamics driving the M&A deal origination.
Booming M&A Market
The global M&A market has been stupendous, considering solid and robust activity in the origination of deals. Global M&A deal volumes increased to around $3.7 trillion during the year 2023, according to Refinitiv. That volume reflected a 9% increase from the previous year’s total of $3.4 trillion. This upward trend underlines a very vibrant market where the origination of deals is flourishing.
Key Trends in M&A Deal Origination
Technological Advancements
Improved Data Analytics
Integration of technology has transformed the M&A deal origination process. Currently, advanced data analytics and AI form the heart of identification and evaluation processes for potential deals. Over 60% of the major investment banks and advisory firms have begun using tools based on AI and machine learning to Boost deal sourcing and valuation processes in an offer to enable better identification of target companies, predictive market analysis, and efficient due diligence.
Analytics and Machine Learning
Innovative applications of machine learning algorithms are used today for the prediction of potential M&A deals. Companies that take predictive analytics on board for origination close 15% more deals than other firms that still take the standard mode of origination. This is because predictive models are able to adequately propose promising targets given past historical data and many market conditions, thus enabling proactive actions by firms.
Industry-Specific Trends
Technology Industry
It appears that technology M&A deal origination value closed at $1.2 trillion as of 2023, having covered over 30% of the global M&A market in terms of value. This proves the significant interest in acquiring innovative technological competencies and digital assets.
Healthcare Industry
The M&A deal origination in health care peaked at about $800 billion in 2023. This figure is an increase of about 12 percent compared with the figure of the previous year. As per the Merger market, this trend continues. This indicates broad consolidation and innovation in health care, pharmaceuticals, and biotechnology with new, more efficient, and sophisticated healthcare solutions.
Geographic Diversification
Emerging Markets
Emerging markets are now increasingly becoming more attractive for M&A deal origination, especially because of prospects for growth and an expanded consumer base. Cross-border M&A involving emerging markets escalation (15% to 650 billion dollars in 2023). This rise in transactions reflects a positive trend in deal origination, where companies are actively looking for growth opportunities in high-potential areas.
Regional Growth
Growth in areas such as in Asia-Pacific and Latin America. As compared to last year EY pointed out that the Asia-Pacific region represented 35% of global M&A deal origination volume in 2023. An increase of 10%. Growth within these regions is influenced by a good economy and an increased emerging middle-class population, together with the development of investment opportunities.
Strategic Deal Origination Approaches
M&A Deal Origination- Strategic Approaches
Proactive Outreach
Probably the oldest yet most efficient M&A deal origination strategy is active outreach and relationship building. Companies that are involved with possible targets through networking and partnerships are in a position to source many valuable opportunities. Even Deloitte, also found it to be a key indicator, where firms, that went out actively to solicit opportunities, have a 30 percent greater chance of closing deals than those that rely on incoming inquiries only.
Leveraging Industry Expertise
It is important to identify and analyze potential M&A targets using industry knowledge and experience. Companies employing sector-related insights during the building of strong ties within an industry are more likely to identify the potential earlier on. This has been supplemented by data from the M&A Research Centre, which indicated that 45% of completed deals were sourced through industry relationships and expert networks, thereby further validating the value addition arising from sector-related knowledge for the origination of a deal.
Innovative Deal Structures
Flexible Deal Terms
More businesses are also showing greater deal origination success because of innovative deal structures and more flexible terms. Increasingly more businesses are turning towards creative approaches like earn-outs and contingent payments to facilitate a deal. According to a Bain & Company report, deal structures have become more flexible allowing negotiations to not be very contentious and much more appealing, with proper interest alignment between buyers and sellers.
Strategic Partnerships
The companies are also origination deals through strategic partnerships and joint ventures. These involve collaborative arrangements that result in companies getting into partnerships or collaborations with other companies to explore opportunities before undergoing fully-fledged acquisitions. The Harvard Business Review contributes this idea by claiming that partnerships of such natures offer understanding and thus make the easier flow
Positive Impact of ESG Factors
Sustainability and ESG Investments
Environmental, Social, and Governance (ESG) factors are increasingly influencing M&A deal origination. With increasing attention to ESG at both the strategic level and in line with company’s long-term priorities, there has indeed been a surge in the number of deals across sectors that support the sustainability goals. According to EY, by 2025, ESG-oriented M&A deal origination will account for 25% of total M&A activity, with the trend already beginning to turn the corner into a more responsible, impact-driven direction.
Increased Transparency
Although ESG is increasingly gaining prominence, on this occasion this has driven more openness on deal origination. Companies employ greater advanced due diligence that evaluates both the proposed target’s ESG performances with a view to potential acquisition, thus typically creating more high-quality deals and aligning the same with broader corporate responsibility goals.
Magistral’s Services for M&A Deal Origination
Market Research and Analysis
It encompasses an in-depth market study to identify trends and potential target companies.
Target Identification
Utilizing advanced analytics and databases to pinpoint strategic acquisition targets based on specific criteria.
Valuation Services
Providing accurate valuation of potential targets using various financial models and metrics.
Due Diligence Support
Offering thorough due diligence processes to evaluate the financial, operational, and strategic fit of potential deals.
Industry Expertise
Leveraging sector-specific knowledge to identify opportunities and assess market conditions effectively.
Relationship Building
Facilitating introductions and networking opportunities between potential buyers and sellers.
Transaction Structuring
Assisting in designing flexible deal structures that align interests between parties, including earn-outs and contingent payments.
ESG Advisory
Providing insights into Environmental, Social, and Governance factors to ensure alignment with sustainability goals in M&A activities.
Strategic Partnerships
Advising on joint ventures and partnerships as preliminary steps before full acquisitions.
Post-Merger Integration Planning
Offering support in planning and executing integration strategies post-acquisition to maximize synergies and value.
About Magistral Consulting
Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates, and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modelling, Portfolio Management, and Equity Research
For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact
About the Author
The article is authored by the Marketing Department of Magistral Consulting. For any business inquiries, you can reach out to prabhash.choudhary@magistralconsulting.com
What role do technological advancements play in M&A?
AI and other advanced data analytics are changing the origination landscape of deals in terms of sourcing, valuation, and due diligence.
Why are emerging markets becoming attractive for M&A?
Growth as well as increasing consumer base in the emerging markets, with a major surge in cross border M&A, especially in 2023.
What are effective deal origination strategies?
Pro-active outreach as well as the use of industry expertise are excellent strategies; firms that are networking proactively have a higher success rate.
What impact do ESG factors have on M&A?
ESG factors have gained significant influence over the course of M&A as almost a quarter of the deals are likely to be ESG-related by 2025. This will once again increase transparency and align with the overall corporate responsibility objectives.