Transformative sectors boom but buyers face challenges
New targeted acquisitions commencing decreased by 13% this quarter (QoQ) but were up 34% compared to the same quarter in the 2022. Over the whole financial year, targeted acquisition activity was up 21% YoY.
In the current market, buyers looking to make acquisitions are facing significant challenges. To succeed in securing a deal, they need a strong and well-substantiated business case for their investment, demonstrating how the deal will create value and showing clear, quantifiable outcomes from the acquisition.
Buyers should be prepared to invest beyond the purchase price to ensure the success of the acquired business. This could involve further investments in technology, infrastructure, talent, or other areas that can enhance the company's performance.
PwC warns that securing financing for deals is becoming more difficult. Traditional funding sources may no longer be as readily available, or they might come with terms that do not align with the expected returns from the acquisition. Buyers may need to be creative and resourceful in seeking capital to fund their deals.
The race to AI drives buying spree
Technology continues to drive digitization and change, with generative AI the next major hype.
Pressure is on CEOs to demonstrate they are incorporating AI into their strategy; the race to lead in the red-hot AI space is generating a wave of acquisition and investments, but AI talent scarcity will pose challenges for acquisition strategies.
Tech companies are at the forefront (surprise, surprise), with giants like Salesforce Ventures, Google and Microsoft investing hundreds of millions into AI startups – but other industries are following suit. PwC in the US recently unveiled its plan to dedicate $1 billion to AI initiatives and the upskilling of its workforce within the next three years.
Renewables a hot commodity
AI isn’t the only thing driving transformation and creating M&A opportunities.
Renewables acquisitions are also a hot commodity, increasing competition for assets amid a push to meet aggressive renewables targets and net-zero goals.
This upward trend is playing out across the globe. In the past four years, Europe has seen the highest renewables deal activity with approximately 40% of deals involving a Europe-based target. North America has seen the second highest activity levels, followed by Asia Pacific (McKinsey).
Various players – from individual developers and financial institutions to oil & gas and utility companies – are actively seeking to acquire to meet distinct strategic purposes. As such, there is a strong anticipation of major growth in M&A activities within the renewable energy sector, although buyers should be wary of factors like energy security, market fluctuations and rising electricity costs.