Wide-Ranging Trade Issues Confront Global Businesses on Multiple Fronts
M&A Dynamics
In addition to the movement of goods and commodities, the role of mergers and acquisitions (M&A) is significant in shaping the landscape for global trade. M&A dealmakers see potential in the global economy in the coming years, but maintain a close eye on an increasingly interconnected risk landscape.
According to Aon’s Global Risk Management Survey, dealmakers and risk managers consider the top five financial risks to be:
- Cash flow or liquidity risk
- Capital availability
- Interest rate fluctuations
- Asset price volatility
- Business interruption
Each risk intersects, amplifying the threats financiers face.
Macroeconomic volatility and increasingly complex regulatory regimes have affected M&A market dynamics over the past two years. Access to capital has become increasingly challenging, with elevated interest rates making the cost of borrowing more expensive.
In response, some dealmakers explored alternative sources of capital, while others paused transactional activity until economic volatility begins to smooth. This led to a deal volume decline of 11 percent in the first half of 2023, down 35 percent against 2021 highs, according to Aon’s M&A 2023 Risk in Review.
Despite these numbers, change and optimism are in the air in 2024. “Macro factors are indeed squeezing clients and creating headwinds for M&A,” says Gary Blitz, Co-CEO for M&A Transaction Services. “But over the last three to six months, we’ve been seeing the market rebound as the volatility coming from those factors subsides.” This should bode well for broader trade dynamics.
Alongside the financial and operational impacts of macroeconomic volatility, environmental social and governance (ESG) pressures are a focus for dealmakers globally. It is not just a responsible choice, but a strategic imperative. From attracting investors and consumers, to fostering employee engagement and securing regulatory compliance, embracing ESG principles has become integral for forward-thinking businesses.
ESG obligations and robust governance reporting directly impact company valuations and deal appetite, but dealmakers are reporting the quality of ESG information is not always up to the desired standard currently.
As multinational M&A deals and supply chains extend across multiple regions, assessing social risks, such as a country’s human rights record, is now a business imperative from both an ethical and regulatory standpoint.
“Because ESG means different things to different stakeholders, and because regional and industry nuances matter, there is not a one-size-fits-all approach to ESG-related categories. This is especially true in the impact of ESG on valuations or risk assessments by financial stakeholders,” says Kelsey Owen, Partner of Talent Solutions, North America.
An Outlook on Financial Trade, M&A and ESG
Global growth is projected at 3.1 percent in 2024, up 0.2 percent from October 2023, according to the World Economic Outlook.6 Inflation is also falling faster than expected in most regions — down to 5.8 percent in 2024 and predicted to reach 4.4 percent in 2025. The likelihood of a hard economic landing is receding, and risks to global growth are broadly balanced.
As such, the key word in M&A — and trade more broadly — is stability, which the global economy appears to be delivering to dealmakers as we move deeper into 2024.
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