Alternative financing is expected to increase over the next 12 months, according to Aon’s and data provider Mergermarket’s M&A Risk in Review latest edition.
The survey revealed that 50 senior executives from corporate development teams, private equity firms and investment banks, dealmakers remain upbeat about the health of the M&A arena.
Nearly half of respondents (46%) expect the number of deals globally to increase somewhat or significantly over the next 12 months compared to 2022. A further 20% expect figures for the year ahead to remain in line with current volumes.
Gary Blitz, global co-CEO of Aon’s M&A and Transaction Solutions, commented: “We are excited to share these important market insights that can help shape better decisions as the deal environment continues to evolve and poses new challenges.
“By taking this broad view of the M&A landscape, dealmakers are better able to understand and respond to critical risks that can have an impact on a deal’s success.”
Analysts stated that this does not necessarily mean that sailing will be smooth, as climate, tax and cyber risk, as well as market dislocation and geopolitical uncertainty will test M&A strategies – which has never experienced being hit by such varied forms of volatility simultaneously.
Dealmakers, the survey noted, must be proactive in controlling whatever risks they can, install mitigation plans for those outside their direct influence and use risk transfer solutions when available.
“Dealmaking is about balancing risk and return,” said Alistair Lester, global co-CEO in Aon’s M&A and Transaction Solutions. “With strong risk mitigation processes in place, including a multi-disciplined approach to due diligence and the strategic use of insurance capital, dealmakers are able to transform their risk into opportunity to improve their deal outcomes.”
Other highlights of the report include rising Environmental, Social and Governance (ESG) scrutiny in the M&A market.
According to the report, 96% of respondents expect ESG scrutiny in deals to increase over the next three years, including 48% who expect it to increase significantly.
In addition, 24% say environmental litigation creates the most concern in respect of potential disputes in a deal.
Regarding Technology, Media and Telecom (TMT), the report found that 68% of respondents identify TMT as likely to be the most prolific generator of M&A activity over the next 12 months.
Conversely, the financial services sector is forecast by 32% of respondents to be the least prolific sector for dealmaking.
Also, 72% of respondents expect financing conditions to worsen compared to 2022, including 38% who expect them to become much more challenging.
In response, analysts found that dealmakers are turning toward alternative financing sources, including private equity (64%) and non-bank lending (38%).
