Geopolitical uncertainty tops the list of fears among M&A dealmakers, according to a new study from Aon and global professional services firm Mergermarket.
The M&A Risk in Review report suggests that last year’s resurgence in M&A activity can be sustained, although perhaps not at the record levels of 2021.
The outlook is particularly strong in the technology, media and telecom (TMT) sector, with 70% of respondents citing TMT as the most prolific sector in terms of expected dealmaking over the next 12 months. TMT was well ahead of the pharma, medical and biotech sector at 44%, Aon reported.
Fifty-four per cent (54%) of respondents believed that M&A would be least active in the energy, mining and utilities sector due to reduced demand for raw materials and volatility in commodity markets.
The report pointed to emerging trends and priorities for investors trying to navigate the uncertainties of geopolitics, government regulations and pandemic-related disruptions. Fifty-four per cent (54%) of respondents feared the impact of geopolitical uncertainty. European M&A activity is more likely to be significantly impacted than dealmaking in other markets, but sentiment will be affected worldwide, the report said.
Respondents also cited concerns over other risks, including market dislocation or disruption (50%), the macroeconomic picture (34%), legislative/regulatory risk (28%) and technology/cyber risk (26%). Only 26% cited the COVID-19 pandemic as one of the three most significant risks their organization would face over the next 12 months.
Environmental, social and governance considerations will also continue to play a role in M&A transactions. Ninety per cent (90%) of survey respondents predicted an increase in scrutiny of deals for ESG implications over the next three years, and 48% believed the increase would be significant.
Regarding regulation, 42% of dealmakers cited environmental issues as a concern. In addition to ESG considerations, dealmakers also need to navigate issues including supply chain risk and securing data and information during the investment process, the report said.
“Even after the recent intense period of record M&A activity, dealmakers are still maintaining a healthy pipeline with cash at unprecedented levels,” said Alistair Lester, global co-CEO of M&A and Transaction Solutions at Aon. “They are, however, faced with serious headwinds and new forms of volatility, including geopolitical uncertainty driving inflation and interest-rate increases, the acceleration of the digital economy, a constantly changing tax landscape, sophisticated cyber threats, heightened scrutiny of environmental, social and governance programs, and a challenging talent market that puts pressure on people programs and integration.”
“In today’s environment, it is critical for both strategic and private equity dealmakers to take a wide view to mitigate exposures and make better decisions when approaching financial, tax, legal and other risks,” said Gary Blitz, global co-CEO of M&A and Transaction Solutions at Aon. “Dealmakers are encouraged to identify opportunities throughout the deal lifecycle to secure their assets and enhance their returns, as well as examine how transactional insurance solutions can improve transaction structures and take certain contingencies off the table for buyers and sellers.”
