For complicated reasons relating to the pandemic disruption of the global economy starting in 2020, mergers and acquisitions (M&A) have witnessed a historic surge in deals completed.
Overall deal value increased by 300% in the first half of 2021 when compared to the same period of 2020. In fact, the first six months of 2021 had more deals than in all of 2020.
Now in 2022, the trend continues and in a robust fashion. More M&A deals are being completed than ever. However, there is a significant difference in the way it is getting done. Firms are moving away from big-dollar deals to those that place strategic positioning and other factors at the forefront.
For example, companies are seeking ways to streamline their assets, enhance digital capabilities, snap up the top talent and position themselves to gain an advantage over competitors.
Experts call this a “through-cycle mindset to M&A.” That means a focus on making new alliances, mutually beneficial partnerships and shoring up areas of weakness in current company structures.
Company leaders are focusing on specific and sharply define business issues or a well-thought-out “M&A theme.” Whereas before the philosophy of an M&A was largely driven by “huge deals” involving a lot of money, factors like reducing risk and strengthening performance have come to the fore.
A recent study conducted by McKinsey’s Global 2000 team that this new philosophy on M&A has paid off. Such mergers have outperformed traditional “big money” deals by a significant measure. One of those measures is greater returns for shareholders, the Holy Grail of any company policy.
By the way, the McKinsey research showed that the worst business strategy is the organic growth model. This is when a firm seeks to increase output and sales by sticking to internal measures. This does not consider growth attributed to an M&A.
The most used method of inorganic growth is an M&A strategy. The point is that M&A has proven to be a better method to grow a company than by sticking to an internal organic growth approach.
The latter is yet another reason so many companies are opting for M&A in the current post-pandemic economic cycle.