Companies Are Changing Their M&A Strategy

By: James Flippin · January 11, 2023 · Reading Time: 3 minutes

Lower M&A Activity

2021 was a mega year for mergers and acquisitions, or M&A. However, global M&A activity dropped 37% from 2021 to 2022, marking the biggest year-over-year decline in two decades.

There were a few factors at play that led to lower M&A activity, including rising interest rates, a tougher regulatory environment, and recessionary fears. These factors made it more difficult for companies to put together the type of financing that a major merger or acquisition requires.

Creative Financing

That said, companies never cease to merge or acquire entirely. Instead, the deals must adapt to fit the changing economic climate.

For example, companies are turning to 364-day loans — which help companies get lower interest rates by committing to a shorter time frame of repayment — as a new M&A financing strategy. The demand for these loans jumped 17% in 2022 compared to 2021. Grocery giant Kroger (KR) is using this strategy to acquire rival Albertsons (ACI).

Another strategy that’s gaining popularity is for a company to acquire a minority stake, as opposed to a majority stake. Opting for a minority stake can help companies avoid the refinancing that typically comes with acquiring a company completely.

Why Does M&A Matter?

M&A activity has the potential to impact some of your favorite brands. It can provide up-and-coming businesses with an influx of resources and exposure.

However, it can also force a company to rebrand and make changes to its core product or identity. For example, Elon Musk’s acquisition of Twitter, — one of the biggest exceptions to last year’s slump — alienated many of the platform’s users.

Slower M&A activity means that you can expect less of this in 2023 — at least until companies have adapted to the new economic landscape.

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