Four forces shaping the next year of M&A deals from the McKinsey Goldman Sachs M&A Conference Australia
Following a subdued year of global M&A activity in 2023, the fundamentals appear to have strengthened significantly, presenting strong opportunities for value capture. This was the consensus at the 2024 McKinsey & Goldman Sachs M&A Conference in Sydney, attended by more than 180 M&A leaders in May.
The full-day plenary program ranged from an in-depth exploration of market dynamics and macroeconomic shifts, to targeted sessions on unlocking integration-led transformations and getting deals done in the current market.
Four key takeaways emerged, which can inform M&A leaders as they plan and execute their forthcoming strategies:
1. A complex geopolitical landscape requires us to count on volatility.
There was recognition from leaders throughout the day that, rather than being a barrier to M&A, geopolitics is now simply a further ‘module’ to be reflected in your M&A strategy conversation in a way it may not have been previously. While geopolitical instability has the potential to impact growth in many ways—including energy costs, rates, financing costs, supply chains, and sourcing—the megatrends shifting the way we live, like the energy transition and expansion of AI, will continue, and will require capital. At the end of the day, the research is unequivocal that acquirers who approach and execute M&A in a programmatic fashion outperform all other styles of dealmaking (including purely organic strategies).
2. Increasing regulation means we need to build new muscles.
Throughout the day, two themes emerged which create a tension for deal-makers – M&A regulation in Australia is only going to continue increasing; and ‘delays kill deals’.
Our latest research shows over the past two years, some 30 percent of the 50 largest global acquisitions (by deal size) experienced delays attributable to factors beyond the control of dealmakers, up from 15 percent in 2020. Australia made up ~3% of the top 100 deals of each of the last five years, and 33 percent of these were delayed (slightly above the global average). Deal delays can destroy significant value and undermine momentum and morale in several ways, including prolonging ‘BAU’ distraction, opening a window for competitors to prepare and respond, and increasing costs for retained internal and external deal teams.
With this in mind, M&A leaders need to develop a new tool kit made up of the four R’s – reflecting on all potential delay scenarios and investing in robust contingency plans; revising the team’s focus during delays on value-maximising actions to limit downside and unlock potential upside, reframing the narrative and communicating it clearly; and reinvigorating people touched by the deal to sustain momentum.
3. Winners will be programmatic, not just opportunistic.
A broad range of perspectives during the day concurred with what over two decades of our own research confirms—that companies that take a programmatic approach to M&A outperform their peers. What’s more, with the increasing geopolitical uncertainty and regulatory complexity, one panelist made the astute observation that the lower hanging ‘opportunistic’ fruit is drying up. Moving forward, it’s likely deals will become increasingly difficult to realise value from. Shifting from the opportunistic mindset to the programmatic approach requires M&A leaders to consider whether they really understand the business of their target, or whether they’re just in the same business as them. It also requires acquirers to be humble enough to learn from the acquired business, and to approach each deal with a bespoke playbook, rather than simply applying thinking that’s worked in the past.
4. When you fail to focus on people in deals, the ‘soft stuff’ becomes hard, and the ‘hard stuff’ goes soft.
McKinsey senior partner Ben Fletcher, shared this pearl of wisdom in his reflections on how integrations ‘go wrong’ and value is destroyed—a view that was echoed by many other leaders throughout the day. There was widespread agreement that a focus on people goals, and indeed a broader vision for the future operating model post-integration, should be elevated and ‘hardened’ to have the same rigor and accountability as financial goals. To achieve these metrics, it's crucial to spend more time crafting and communicating a compelling change story and to repeat this story until everyone in the organisation can communicate it in their own words. And critically, as Ben shared, ‘remember, what motivates you doesn’t motivate everyone else – so don’t start the story with what you want to get out of the integration’.
As we move forward, the insights shared throughout the day will undoubtedly shape the strategies of Australia’s M&A leaders in 2024 and beyond, equipping them to navigate uncertainties and capitalise on emerging opportunities. The emphasis on a programmatic approach, coupled with a robust focus on regulatory adaptations and people-centric strategies, sets a clear path for realising value in future deals.
The Australian M&A Conference 2024 was held in Sydney on 8th May, 2024. We thank Goldman Sachs Australia and New Zealand for their continued partnership in producing this truly unique event.