M&A trends: Reflecting on 2022
Whilst last year saw most of the world emerge from the Covid-19 pandemic, opportunities within the M&A sector continued to be shaped by geopolitical trends and events. As we begin 2023, we reflect on some key trends within M&A sectors over the last year and what we can learn from them.
1. Chemicals and manufacturing
2022’s global supply chain crisis shone a light on the fragility of manufacturing models. European market sentiment softened as manufacturing sectors, such as automotive, struggled to adapt to the shortfalls in component supply. Likewise, energy-intensive manufacturing industries were heavily impacted by rising energy prices due to the conflict in Ukraine, feeding through into higher inflation and pressure on profit margins.
Despite this, opportunities have arisen from higher import costs. There was a growing trend towards fully or partly reshoring elements of critical supply chains as western markets considered national security concerns. This has given rise to further M&A opportunities in the domestic chemicals and manufacturing sectors particularly since investors can benefit from strong returns due to a direct link between IP development and regulatory demands on the market.
2. Telecoms, Media and Technology (TMT)
The trend towards digitisation, accelerated by the pandemic, also prompted a high deal volume throughout 2022, with activity largely focusing on software and digital transformation. With businesses facing inflation and recession, technology and telecommunications have proved pivotal in the shift to digital working, allowing businesses to cut overheads and maximise efficiency. As a result, M&A activity in this space continues apace – a trend which we would expect to see continue throughout 2023.
Technology also continues to underpin innovation and development in other key industries, including HealthTech, FinTech, AdTech and digital marketplaces, with key stakeholders shifting focus away from long-term growth and towards more immediate profitability.
As a result of an ever-changing threat landscape, we saw a rapid increase in demand for cybersecurity products and services, leading to increased M&A activity in this space.
An uptick in vendor consolidation has seen security products converging and vendors aiming to combine security functions into a single platform. Similarly, the use of AI and machine learning has been increasingly deployed to create persistent, automated security environments and automated threat detection and responses.
Opportunities for profit arise through recurring revenue, with cybersecurity products offering subscription-style models which drive value through creating predictability and a stable base for growth, whilst reducing customer acquisition costs.
4. Energy transition
Conversations around sustainability and climate goals have been ongoing for some time, but with global conflict prompting energy security and supply concerns, markets have accelerated their focus on renewables and energy efficiency. Particularly high-growth areas include hydrogen, energy storage, carbon capture, and clean energy technologies.
Recently, for example, Rothschild & Co and Arrowpoint Advisory have advised the shareholders of Elcogen plc, the European manufacturer of clean energy technology that delivers affordable green hydrogen and emission-free electricity, on securing a €24 million investment from Hydrogen Capital Growth plc.
Such investment is just one example of the continued innovation in clean energy, and we expect environmental, social and governance (ESG) factors to remain a central focus in M&A deals throughout the year.
As a result of the wave of digitisation that continues to shape our industries, we would expect increased M&A opportunities in the TMT and cybersecurity sectors to sustain throughout the year, especially as the UK looks to technology and AI to increase capacity and boost productivity. Similarly, it’s likely that, despite ongoing supply issues, the trend for domestic M&A opportunities in chemicals and manufacturing will grow, signaling a potential rebound for the sector in 2023 on top of accelerating research and development in clean energy technologies. Ultimately, 2023 bodes well for M&A, particularly as firms have large amounts of dry powder ready to be used once confidence steadies.