Following trends and activities in the economy and business environment, business experts project that going forward, mergers and acquisition deals will be on a continuous rise as companies scramble to retain position in the market.
A report from the Global Capital Confidence Barometer survey, compiled by Ernst & Young (EY), a professional services firm, says that going forward, M&A will be on a continuous rise, especially as companies, will scramble for larger market shares as well as larger resources, It added that portfolio optimisation will be a key driver of M&A as companies continue to divest low-margin businesses to maximise profitability.
“The manufacturing sector is an industry in transformation, driven by the need to become more efficient and the rapidly growing potential of digital technologies. AM players are expanding their revenue streams and the ways in which they meet rising customer expectations. Several manufacturing companies have resorted to megamergers to optimize economies of scale and cost efficiencies.” the report says.
In Nigeria, many companies, especially in the manufacturing and banking sectors, are struggling to stay afloat due to the recurrent challenges inherent in the business environment as well as the economy. In their bid to survive, these companies merge with other companies and carry on with their activities.
“Companies are clearly looking to M&A to navigate current and potential barriers to growth. Indeed, deal-making is often the fastest route to build the optionality that companies need to proactively respond to evolving challenges,” Steve Krouskos, Vice-Chair: Transaction at EY said in a public statement.
Furthermore, in terms of technology, prevalent infrastructural challenges have hindered older companies from the quick adaptation of technological advancement forcing them to follow up with a slow pace while start-ups have a competitive edge on technology. As a result, companies are looking to M&A as the fastest routes to get the transitional capabilities that will augment and accelerate their own growth agendas and digital strategy.
A report on Nigeria’s mergers and acquisition market released by Udo Udoma and Belo-Osagie, a corporate law firm, says that the M&A and investment transaction structures have evolved to address possible exposure to current economic challenges.
“M&A activity in specific sectors may be spurred by legal and regulatory policies targeting struggling businesses in certain sectors, such deals may create or lead to stronger entities emerging from on-going mergers, consolidations and restructuring initiatives aimed at buoying struggling businesses, ” the report says.
Data from Global Transactions Forecast report released by Baker McKenzie and Oxford Economics, a global law firm shows that M&A deals in 2017 amounted to $469.8 million in Nigeria and rose by 475 percent to $2.7 billion in 2018.
