Economic headwinds and geopolitical uncertainty tied to the war in Ukraine, rising interest rates, inflation, market volatility, supply chain issues and a fear of an impending recession have created uncertainty that has adversely impacted valuations and deal volume. Despite these concerns, cross-border M&A continues to outpace domestic dealmaking.
“Despite the uncertainty in the current global climate, cross-border transactions continue to offer compelling opportunities for strategic buyers seeking diversification and market expansion opportunities,” says Enrique Martin, partner and managing partner of Winston & Strawn‘s Miami office. “Global instability will continue to produce opportunities for the savvy investors where others can only see high levels of risk. Investors with higher risk tolerance will see the current market conditions as an opportunity to acquire attractive targets at discounted prices.”
Martin tells Mergers & Acquisitions that industries that will see the most cross-border deals include those that are considered recession proof. Industries like FinTech, including the payment processing and digital payment industries, energy, healthcare and telecommunications, are expected to see the most opportunities
Rising inflation and interest rates in the U.S. are influencing dealmaking by causing debt financing to be more costly and asset divestment to become increasingly more difficult. These increased levels of inflation also yield higher costs of goods and services which will as a result, drive valuations down. Such a volatile environment is expected to present opportunities for strategic investors with cash reserves or access to other capital. For example, multinational firms seeking investment opportunities in new markets or firms with a higher tolerance level of risk looking to capitalize on undervalued targets.
“These strategic transactions tend to be less price sensitive because they are motivated by reasons other than an opportunity to buy at the lowest possible price,” says Martin. “Demand for M&A is expected to remain consistently high among buyers looking for targets that represent opportunities for growth or international market expansion.”
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