As we entered the last quarter of 2023, corporate development leaders, in-house counsels and private equity investors discussed a wide range of trends and issues impacting M&A at the Transaction Advisors Institute’s most recent conference. Among the topics discussed were shifting M&A strategies, artificial intelligence, antitrust dynamics, assessing and advancing M&A targets, and divestiture.
Below, we’ve collected some key takeaways from the conference. They highlight dealmaking trends over the last year as well as predictions by industry experts about transaction activity and the M&A outlook in 2024.
Trends and Key Takeaways
1. Context-specific Approaches as a Path to Success
The biggest mistake a company can make is taking a one-size-fits-all approach to M&A. Several speakers at the conference remarked on the importance of companies taking an industry- and context-specific approach for long-term success.
That being said, one panelist remarked that M&A is inherently a reactive process. You can have lots of pipelines and rankings, he noted, but deal opportunities can arise out of the blue with little forewarning, and dealmakers have to be ready to respond quickly.
While one-size-fits-all approaches are not ideal, having a basic framework to use and tailor to deals as they arise is a smart option. Excel templates or purpose-built work management solutions with built-in playbooks are useful tools for executing a faster, but still tailored approach.
2. AI Continues to Hold Promise in M&A
Several speakers said their companies are increasingly leveraging AI to improve the efficiency of their M&A processes, including: predicting synergies with prospective targets, identifying potential problems, and reviewing contracts. An M&A partner at a prominent management consulting company said their teams are currently using AI to expedite due diligence and assess web sentiment.
Another panelist mentioned a current partnership with OpenAI and Microsoft to incorporate AI into their business. On the deal side, large language models (LLMs) can help these teams get to answers more quickly. This same company is using AI to scan contracts to identify issues, which are then reviewed by humans.
An executive at a prominent media holding firm said his company has run some “science experiments” using AI, such as generating Transitional Services Agreements (TSAs) based on reviews of diligence documents. Meanwhile, another panelist said that his organization is using AI to scrutinize past deal documents and standardize future agreements.
3. Quality Over Quantity and Deal Reviews
A number of speakers stressed that it has been better for them to spend more time on finding good targets and doing good deals than to try to close as many deals as possible. They also stressed the importance of periodically reviewing past deals to determine what worked and what didn’t, and to incorporate those learnings into future processes. Unfortunately, scorecard reviews can be challenging. While getting the metrics is relatively easy, determining why the numbers changed is difficult and time consuming.
On the topic of review frequency: one information technology company at the conference conducts quarterly business and deal reviews so they can make adjustments to improve future outcomes. Others conduct reviews less often. An executive at a streaming company, said his team does annual scorecard reviews. Once per year appears to be the minimum recommended frequency for such reviews.
4. A Shift in Antitrust Dynamics
Several speakers said the renewed emphasis on antitrust regulations by the Biden administration is making the M&A outlook more challenging. New FTC actions have made closing less certain and resulted in much more up-front work. One panelist mentioned that their company now does an antitrust review on every potential deal and considers whether there is a possible remedy if an issue arises. Internal deal documents are screened for inflammatory words such as “dominate,” “roll up,” or “market leader.”
The assistant general counsel at a private equity (PE) firm, said these antitrust regulations are pushing dealmaking back to where it was 30 or 40 years ago. PE companies are now preparing themselves for more scrutiny over every deal.
5. Earned Organizational Trust in the Integration Team is Crucial
It is important to have buy-in across the acquiring organization to realize the full value of a deal. The integration team must work closely with the diligence team so they understand why the company is buying another and where they need to focus.
Additionally, the integration team needs the trust of the target company to realize a deal’s full value. The first four weeks after closing are crucial for realizing deal value because that time frame is when the acquired company gets exposed to the acquiring one. This first month can either confirm fears and biases or assuage them. Missteps by the integration team after close could irreparably damage trust.
6. Divestitures are and will Continue to be Difficult
Divestitures mobilize the business in a way that it is not used to. They require a structured, strategic view of a business to determine what does and does not fit the corporate portfolio. Many speakers indicated they avoid divestitures because they are usually messy and time consuming.
Final Thoughts and Further Reading
M&A is not getting any easier on the whole, but there remain exciting opportunities for inorganic growth. For insights and trends gathered on the M&A outlook from earlier conferences, check out our key takeaways from the M&A conference in San Francisco or insights from the M&A conference in Chicago.
To learn more about how M&A work-management platforms are helping companies around the world accelerate their inorganic growth, please contact us.