Deal activity continues to heat up in the cryptocurrency space as the adoption of crypto becomes more mainstream. Last year was a huge year for cryptocurrencies. In 2021, the price of bitcoin was up 49%, Ether was up 390%, and Dogecoin was up a whopping 1,600%. The M&A market for cryptocurrency soared by nearly 5,000% last year. But this is nothing compared to the activity for M&A of crypto companies.READ MORE >>
What Is the Metaverse?
The metaverse is an immersive digital online environment that links social and commercial activities through technologies such as virtual reality and augmented reality to create 3D virtual spaces that mimic reality. Its use is quite broad and can be applied to gaming, work meetings, e-commerce, socializing, or entertainment. The term “metaverse,” which was first introduced in the 1992 novel Snow Crash, is today considered a way to truly redefine the Internet. It is a concept that is still being shaped, but the vision is rapidly evolving. There is not necessarily one single defined metaverse, as various companies are working to shape the idea in their own ways. For example, blockchain tech such as cryptocurrency and non-fungible tokens (NFTs) are being used to support digital transactions in the metaverse. Video game makers are shifting their online worlds to resemble social networks with a market opportunity to expand to include live entertainment such as concerts and sporting events. With this transformation comes a battle for the share of social media ad revenue. And as the metaverse continues to evolve, it continues to represent a huge business opportunity.READ MORE >>
The financial health of the aerospace and defense (A&D) industry has rebounded significantly from the negative economic COVID-19 impacts of 2020, poising the sector for a strong M&A market in 2022. The earnings of commercial aerospace firms have recovered, and original equipment manufacturers (OEMs) have announced a series of production rate increases for the years 2023 to 2025, raising the likelihood of supply chain acquisition activity in 2022. Additionally, the defense budgets of both the United States and Europe have remained stable, leading to high demand for defense products and services despite some production offsets due to supply chain challenges.READ MORE >>
eSports is a form of video-game-based competition that has seen significant revenue and viewership growth in recent years. Much of the revenue is coming from advertising dollars from brands, such as ads shown during live streams on online platforms, video-on-demand content of matches, or on eSports TV. And competitive gaming is becoming more mainstream than ever.READ MORE >>
The global fintech market was valued at $6.5 trillion in 2021 and is estimated to grow at a compound annual growth rate (CAGR) of 13.9% between 2022 and 2028 to reach $16.65 trillion.READ MORE >>
The Global Marketing Consulting Market
The global marketing consulting market is expected to grow by $3.83 billion between 2022 and 2026, increasing at a compound annual growth rate (CAGR) of 4.75%.
Market growth is being driven by various factors, including continued education, the rising need for improved customer digital experiences, and the providing of custom-made solutions.
Because the global marketing consulting market is rather fragmented, we are seeing vendors trying to remain competitive by deploying growth strategies such as forming strategic partnerships. Over the next four years, 35% of the global market’s growth will originate from North America.READ MORE >>
Digital tools have been advancing in business operations for years, but today they have become essential for most companies, especially since the onset of the COVID-19 pandemic. The global crisis forced businesses to find ways to connect their employees to each other and their customers without being in person. This storyline became so prevalent that, in the first year of the pandemic, 60% of businesses moved their workforces to the cloud. Two years later, this number continues to increase.
Such demand for rapid digitalization has become a key driver of M&A deals, and continues to create more opportunities for growth and transactions. As a result, many organizations are also adopting tools to facilitate the M&A process on more digital terms. These tools include data and analytics during due diligence, platforms that support fast-moving transactions, and cloud-based services. You can take a deeper dive into the facets of post-COVID due diligence here.
The Global Market
The onset of the COVID-19 pandemic rattled the worldwide mortgage market. New lending volumes plummeted to record lows amid declining consumer sentiment, job losses, and nationwide lockdowns in many countries. However, new mortgage lending has remained on an upward trajectory since the second half of 2020. The total number of closed-end mortgage originations jumped from 8.3 million in 2019 to 13.6 million in 2020. That’s an increase of 65.2%. Regulators have kept interest rates at an all-time low. Even though interest rates could begin to tick up at some point, globally, the mortgage brokerage services market is expected to continue to see tremendous growth through the year 2027.READ MORE >>
Financial Planning & Advisory Sector
In 2022, the market size of the financial planning & advisory industry is $59.2 billion. It is expected to increase 4% this year. Between 2017 and 2022, the market has grown 4.5% per year on average. The size of the market has increased faster in the U.S. than the overall economy.
Industry profit declined in 2020 due to declining assets under management and lower return on assets but increased in 2021 as the economy began to recover. As macroeconomic conditions continue to improve through 2026 gradually, industry operators are expected to benefit from rising equity values and rising interest rates.
High competition is a challenge in the industry, while the population's median age represents an opportunity. This is because the rising median age of the U.S. population is approaching retirement age, which increases the demand for retirement planning, capital preservation, and estate planning.READ MORE >>
Mergers and acquisitions in each industry have their own oddities, and architecture is no different from any other in that regard. However, the following similarities always seem to rise to the top when selling a firm.
Lead Architects are the Key to the Business’ Value.
At the end of the day, like all professional services businesses, the most valuable asset walks out the door every day – and – there is nothing you can do to force them to come back the next day. Acquirers are very aware of this, and when buying architecture firms, they will take extreme measures to ensure that they will return not only the day after the deal closes but for years to come. As a result, almost every deal in this space involves broadening corporate ownership to include, typically, the most senior/valuable 10% of the firm, covering the rainmakers, the client managers, the project managers, and the most brilliant experienced architects. If the owner falls into one or more of these categories, they should expect to retain some equity and sign a multi-year employment agreement.READ MORE >>
The COVID-19 pandemic has had a negative impact on all classes of commercial real estate. Yet, it also created some new opportunities within the commercial real estate (CRE) market, such as affordable rental prices, improved digital communication and payment facilitation, as well as new opportunities for business owners and investors. And further recovery is well underway.
CRE prices fell 11% between March and May of 2020. Since July, prices increased 7%, erasing over half of those pandemic declines. With investors sitting on wealth, more investment in stocks and bonds took place, which pushed prices up and interest rates down. With inflation being a growing concern, more investors may look to commercial properties with leases that have built-in rent increases to keep pace with inflation.READ MORE >>
The COVID-19 pandemic revealed to the world just how unprepared entire business sectors can be when it comes to unexpected events of mass proportion, and just how delicate our global supply chains actually are. COVID has been a health crisis that impacted lives, economies, and industries. Climate-driven events and disasters occur on a more concentrated scale but have proven to be extremely costly and disruptive to multiple sectors in various geographies—a problem that appears to be growing more prevalent.READ MORE >>
In the first half of 2021, medtech M&A deals already surpassed the total number of deals from last year, and this bustle in activity is forecast to continue through the second half of the year, as medtech companies have stockpiled billions of dollars in cash. The dollar value of deals in 2021 is also expected to far outpace that of 2020. Eleven megadeals were announced in H1, with a total deal value of around $128 billion.
Medtech M&A activity kicked off 2021 right out of the gate, with at least 10 deals announced in January alone. Companies emerged from 2020 flush with cash reserves and were ready to spend on dealmaking. The medtech sector recorded a total of 33 deals in the first half of 2021. That's up from 25 total in all of 2020. In fact, the first quarter of 2021 was the busiest for medtech M&A since 2016. While the initial rapid momentum may have slowed, the second half of 2021 should be abundant with new deals.READ MORE >>
As the owner of a Software as a Service (SaaS) company, there are several strategic steps you can implement in order to drive growth and maximize the value of your business.
1. Expand GeographicallyREAD MORE >>
The Covid pandemic has placed us squarely in unprecedented times. We know this is not exactly news at this point. However, counter to the tenor of most pieces you've probably read on the topic during the past 12 months, this one aims to shine some light on one industry that has thrived: The US healthcare market, more specifically, healthcare M&A. Healthcare M&A has generally been a big winner in 2020 and into 2021 and it's happening at both ends of the market.READ MORE >>
Strategic partnerships can be game-changers for SaaS (Software as a Service) companies. Sales revenue is clearly of vital importance, but it takes more than just those numbers to make things happen on a larger scale. Relationships are the bedrock of business. If you are looking to drive growth, a strategic partnership can be a very powerful tool to help your company increase its audience, build upon the brand, and tap into new markets. All of this, in turn, can prop up your sales team and boost your overall growth.READ MORE >>
The Beginning of the End
The turbulent year of 2020 is finally in our rearview mirror. While so many lives have been lost and everyday life is still far from normal, effective vaccines for COVID-19 are being distributed, offering hope for a near-term end to the disruption we’ve endured for the past year.
Markets have begun to respond with optimism for the highly anticipated return to normal, but we’re not at the finish line quite yet. Mass distribution of the vaccine will take time, and people and businesses are still suffering as the virus is spreading at record-high levels and restrictions are being reinforced. This means that, yes, our world remains suspended in a state of uncertainty, but we have good reason to believe that the global economy will continue to recover, and mergers and acquisitions will lead the recovery. Research indicates that 53 percent of US executives plan to increase M&A investment in 2021. Some sectors have fared rather well during the pandemic. But how well—and how quickly—the overall economy recovers will depend on factors such as virus containment, fiscal and monetary policy, and inflation.
Virus containment remains the main priority for economic recovery to succeed. However, there are other possible risks to market performance. A lack of adequate policy support could occur due to concerns about mounting government debt. The technology conflict between the US and China is likely to continue even under a more traditional Biden administration, and the impacts are expected to take years to manifest. The decisions made by the two countries will affect regional economies and the businesses that operate within them. Other geopolitical factors could also shift investor attention away from recovery, but they are considered rather unlikely at this time.READ MORE >>
In early 2020, there was plenty of optimism for investment opportunities and growth in the sports sector prior to the COVID-19 pandemic, which has since caused disruption in nearly every sector around the world. Financial uncertainty has been a large factor in addition to issues surrounding player contracts and broadcasting rights. Mergers and acquisitions activity in the global sports world has experienced a downward trend but there is hope on the horizon.
Amidst COVID-19 delays, Italian football (calico) has had its share of off-the-field matters this year. In August, the Italian club A.S. Roma announced the completion of a takeover by Texas-based Friedkin Group: an 86.6% stake in for €591 million, a large decrease from the previously agreed upon figure of €750 million prior to the pandemic. This lower price demonstrates how lost matches, sponsorship, and broadcasting income all impact the valuation of sports clubs. In light of these decreasing valuations, PE firms could be motivated to seek out bargain M&A and financing opportunities.
Italy’s Serie A has also embraced private investment. In September, its 20 clubs agreed to create its own media company financed partially by PE funds in order to better organize the sale and promotion of the league's TV rights. The move is designed to improve governance and increase revenue, especially abroad.READ MORE >>
In the printing and packaging sectors, M&A activity has slowed since August of 2019 with around 14 percent fewer deals closing. Deal activity was strong at the beginning of 2020, and then the COVID-19 pandemic brought everything to a standstill in the spring, with activity starting to return to normal in late summer. In fact, there were 16 transactions in August, which happens to be the same number as August of 2019.
The pandemic has made it more challenging to complete deals because of social distancing and how it impacts personal relationships, but buyers have not lost their strategic focus. The packaging side of the business has shown a heightened level of interest in labels, corrugated cartons, and folding cartons. Private equity and large corporate investors remain in the game. There is increased interest in flexible packaging, but the number of these transactions has been limited by the availability of target businesses in this segment.
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During the first half of 2020, M&A activity in the automotive industry was down from previous years due to uncertainty stemming from the COVID-19 pandemic, with cross-border deals becoming more complex. However, the pandemic also resulted in new opportunities for consolidation within the industry.
There were $11.9 billion in M&A deals, which represented a 54.8% decrease in value compared to the first half of 2019. Most investments were in the pursuit of CASE (Connected, Autonomous, Shared, Electrified) technologies. This type of tech is predicted to drive M&A through the end of 2020. Dealmakers are expected to concentrate on securing supply chains and increasing resiliency rather than expanding globally.
Global Deal Activity
The majority of deal value in volume in the first half of 2020 took place in Asia and Oceania, followed by North America. The largest automotive transaction in the first half of the year was valued at $2.9 billion, with Traton SE, a vehicle-manufacturing subsidiary of Volkswagen AG, acquiring Navistar International Corporation. Volkswagen Group China continued to strengthen its electrification strategy by making two acquisitions valued at more than $1 billion each: Gotion High-tech Co. and JAC Volkswagen Automotive Company.READ MORE >>
As the world still faces the COVID-19 pandemic, businesses in the financial services sectors are preparing themselves for life after coronavirus. This includes the management of credit risk for borrowers, and turning to digital strategies to drive revenue growth.
Insurance and Innovation
The COVID-19 pandemic is forcing the entire insurance sector to implement and leverage digital platforms that enhance customer experiences as a key part of their business strategies in a transformed world in which people are working remotely and driving their vehicles less often. The pandemic has led insurance companies to implement premium relief efforts, offer payment deferral plans, and expand coverage, but these companies are also turning to more digital strategies, emphasizing online customer experiences at a time when more and more transactions occur online versus in person. Consumers are demanding new products such as cyber insurance, more modern life insurance options, and usage-based car insurance. Middle-market insurance companies have always been a bit technologically behind the big players, but they now must adopt new innovations in order to merely keep up with convenience, simplicity, mobility, and modern interfaces that customers have come to expect.
Banking and Lending
Financial institutions are in a position where they need to understand borrowers’ needs and current financial states more than ever. They must also find new ways to measure performance through the rest of 2020. They have already provided assistance to many small and mid-size businesses during the crisis, some of which will be forgiven. Loan modifications have been provided to help businesses survive, and there is likely to be some loan losses. As the economy begins to recover, banks will be able to get a better understanding of borrowers’ financial states, knowing that it will take some time for businesses to bounce back. Deciding whether to lend more credit will be a difficult decision for financial institutions, especially for harder hit sectors such as hospitality and retail. Understanding the recovery of these industries as a whole will be critical through the use of data and payment activity monitoring.
Family offices are private wealth management firms that serve high-net-worth individuals and their families by offering a total outsourced solution to managing finances and investments. There are nearly 2000 of these types of firms around the world, with more than half in the U.S.
These firms have typically relied on physical offices to conduct business. Now in the wake of COVID-19, a shift to virtual family offices has become a necessity during a time where remote work has become commonplace. This has been a challenge for many family offices because most simply do not have the appropriate technology and infrastructure to result in a seamless transition to a virtual office. These businesses will be forced to evolve technologically into the rest of 2020 and beyond. As outdated technology is replaced with better performing innovations, family offices will become more mobile and agile, as well as better equipped with more adequate cybersecurity. Connectivity is also a timely issue, as Millennials will be inheriting family wealth in the future and they demand immediate access to data without disruption and with more transparency. This digital transformation to virtual family offices will also allow for a leaner staff that can deploy resources more quickly.
The events of 2020 have led capital markets to affect businesses in different ways. Underwriting slowed for high-yield borrowers. Mergers were put on hold. Stock markets have been up and down, and a record number of securities and their values have been exchanged. As financial conditions improve, confidence combined with cheap credit will have companies seeking liquidity to get through the rest of the crisis. Corporations have been tapping into the public debt markets at high rates. While this generated profits at the start of the recession, bonds are less likely to be issued as businesses restore their reserves and establish liquidity that will be needed into the future.
For the rest of 2020 and into 2021, investment banking associated with M&A activity will continue to be tied to the economic recovery amid a softer deal pipeline. When the economy finally bounces back, there will be opportunity for a backlog of deals, boosting advisory revenues.
Data and Private Equity
In the time of COVID-19, certain private equity trends have emerged and are expected to be here to stay. People are still paramount, but how they work has changed. Data continues to be more important to deal making to determine the areas for greatest earnings impact. Datasets will track strategic movements and metrics within companies to gauge their performance. Remote workforces will allow competitive PE firms to source key financial talent from entirely new geographic regions. Firms are also expected to outsource more of their back-office work functions and instead focus on front-office responsibilities.
Ready to Sell?
If you are a business owner who is considering making a move, our M&A experts at Benchmark International would love to discuss how we can help with the sale, exit or growth of your company.READ MORE >>
The COVID-19 pandemic and the resulting government responses have had a significant impact on consumer spending, with retailers closed for months and shoppers staying home starting in the early part of 2020, with the timing of closures varying by country. Many consumers continue to stay home, even as most businesses have reopened. Online shopping has surged due to the pandemic. In the U.S. and Canada, e-commerce orders are up 146%.
Household consumption increased over the summer and is forecast to continue. Certain consumer behaviors that were newly formed during the earlier stages of the pandemic are expected to permanently influence spending habits. Retailers will need to clearly understand these behavioral shifts as they navigate the immediate future, and into the long term if they plan to succeed amid the new normal.
Digital as Key Driver
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Business and professional services (BPS) firms are facing increased uncertainty amid the COVID-19 global pandemic. This climate is resulting in less investment and more reliance on revolving credit to maintain access to cash for operating expenses, and keeping priorities on payroll and workforce decisions. Companies with strong liquidity will shift to growth strategies and digital transformation. Also, with a greater need for mobility in a more remote-working world, there is a greater emphasis on cybersecurity, especially for government contractors and law firms.
Government Contracting: A Hot Market for Acquisitions
Government contracting is a significant moneymaker, especially in the United States. These firms rely on the needs of the government and the availability of financial resources for public investments. Government spending is often used to stimulate the economy during a slump. Through the first two quarters of 2020, government spending held steady, with health spending peaking along with the COVID-19 response, with billions going to national interest agencies and programs related to the pandemic.
The middle market in government contracting is comprised of several small, technically specialized service providers that offer high growth opportunities for larger companies that are seeking more capabilities and specific contract access. The pandemic slowed deal flow in the first half of 2020, but deals still happened with transactions expected to continue in the second half of the year. Private equity firms are seeking stable streams of cash flow and government contractors are relatively insulated from recession, making them a solid target for strategic investment and bolt-on acquisitions. M&A activity in the government contracting space is forecast to continue into 2021 as the sector (with the exception of aerospace) has been less impacted by the coronavirus and there is a need for more consolidation in the market.
Cybersecurity is paramount for government contractors for obvious national security reasons. In July of 2020, the U.S. Department of Defense issued the Cybersecurity Maturity Model Certification (CMMC) to build upon cybersecurity best practices from established industry standards with the goal of reducing cyber-risk among its contractors. Other departments of the government will likely do the same, prompting contractors to prepare for it in advance.
The big commercial tech companies typically draw the top tech and cybersecurity talent, making it challenging for government and its contractors to attract talent and offer competitive salaries. During times of increased unemployment due to a pandemic, many skilled workers are seeking out less risky positions. Government contractors should jump on this opportunity to attract young, tech savvy talent.
Law Firms: Challenges and Opportunities
Due to the pandemic, law firms have had to deal with furloughs, layoffs, pay cuts and reducing expenses while finding new ways to boost revenues while working remotely. Liquidity equals agility in uncertain times, so firms should seek to expand their credit lines while making the most of government assistance options.
Human capital remains the single biggest asset for law firms. Working remotely has brought about new challenges for attorneys and staff as they juggle the demands of working, parenting and caregiving. Investing in programs, technology, and other ways to support staff is more important than ever. Amid cutbacks and a lack of contact with colleagues, talent needs to know they are still valued and connected to the firm’s success. Firms also need to take this time to assess what lessons have been learned from remote working regarding obstacles, delays and infrastructure needs and how they can address needs, especially in regard to digital support.
Security and privacy are major issues for law firms operating remotely as they need their files and records to be accessible from outside the office. A digital security strategy is key even once the pandemic has passed, as no one knows for sure what the new normal will look like. Once security is implemented and established, focus can shift to maintaining client relationships and creating revenue growth into the future. Investment in mentoring programs and empowerment of staff can help grow the business and identify new opportunities to support the firm once the pandemic is over and the economy is ready to bounce back.
If you are thinking about a merger or acquisition for your business, please reach out to our M&A dream team at Benchmark International to discuss how we can help you accomplish great things.READ MORE >>
The industrials sector has had to adapt to significant disruption due to the global COVID-19 pandemic, and the challenges associated with it. While 2020 started on a very positive note with rapid growth for the global manufacturing sector, manufacturing output plummeted throughout the beginning of the year and into May due to shutdowns around the world. Output, new orders, exports, and purchases all fell to levels not seen since the 2008 recession. Many large manufacturing countries were under lockdowns into April, but restrictions were eased in May, which helped deter the overall rate of decline. In the wake of the crisis, many companies have found ways to evolve and use digital solutions to transform their business models, discovering changes that will continue to be beneficial in a post-COVID world. This adaptability is crucial to the survival and future relevance of these businesses.
- Automation and connective worker technologies have become even more important to boosting productivity.
- Migration to the cloud allows companies to be more flexible in dealing with disruptions.
- The auto manufacturing industry is growing more resilient due to greater supply chain visibility.
- For oil and gas companies, advanced digital technologies are a vital investment.
The Fourth Industrial Revolution
Industrial companies that made prior investments in digital technologies and IT infrastructure were able to operate efficiently during the earliest phases of the pandemic. The Fourth Industrial Revolution, also known as Industry 4.0, has enabled manufacturers to evolve their traditional supply chains and processes into highly interconnected systems. Leading organizations have been investing heavily in developed digital platforms specific to the industrials sector, pivoting business models towards being more software-centric. Additionally, smart manufacturing technologies are now transforming traditional manufacturing processes and paving the way into the future. More and more companies will be exploring digital technologies to enhance their flexibility and operate more innovatively. Robotics and 3D printing are among the most popular operational solutions that are expected to see continued heavy investment.
While remote work has become a relatively easy and normal option for many employees across different sectors, the industrial manufacturing sector is not one of them simply for logistics reasons. For example, machines need operators to keep them running. However, it has been demonstrated that technology can help limit the number of people needed to maintain operations.
Connected worker technologies are helping to streamline and hasten solutions. Typically, machine repairs require operators to contact service technicians, sometimes located in different facilities or at the original equipment manufacturer. Also, training new or existing workers has typically been face to face. Augmented reality is helping to eliminate in-person interaction for the purposed of repair, service and training and empowering workers to be more independent through digital on-demand access to manuals, instructions, and other resources.
While manufacturing companies tend to be more hesitant about migrating operations to the cloud, these organizations are realizing that cloud technologies enables them to move inventory, work smarter, customize products, and shift resources in much more flexible manner. The cloud is also an effective asset-performance tool that gives supervisors a remote window into facilities, production lines, and individuals.
Robotics and automation have significantly increased productivity for manufacturing processes. By replacing manual processes with automated alternatives, it helps to mitigate workforce availability challenges and reduces the impact of low-cost labor decisions.
Additive manufacturing and 3D printing continues to evolve and has shifted from the production of prototype applications to finished products. These manufacturing technologies are gaining more traction and offer efficient value chain solutions that enable on-demand production, less working capital, reduced supply chain complexity, fewer tools or parts needed, and less frequent human intervention.
The Auto Industry
Technology and connectivity is now the third most cited investment priority for the
automotive manufacturing industry. The future lies in edge computing, monitoring software, and the Industrial Internet of Things. Companies are able to collect and analyze data on site and in real time, connect applications to essential equipment, and conduct advanced monitoring and remote controls.
Another result of the pandemic for the auto industry is a need for more transparency in global supply chains. Thanks to AI, there is a shift from existing models in equipping automakers so that suppliers can use analytics to respond to changes in real time. For middle-market companies that have been known to underinvest in tech, this shift is especially important. Investment in IT infrastructure will help establish a more nimble and scalable environment, and will create more valuable data. The sequentially distributed databases of Blockchain technology are also changing supply chain management and adoption is expected to increase greatly into the future.
The Oil and Gas Sector
Digital technologies are also being adopted by oil and gas companies in order to bolster cost and operational efficiencies, improve safety, and reduce environmental impacts.
Robotics, AI, cloud solutions and Blockchain are all being used more and more to advance the industry. According to Bloomberg, oil companies are expected to spend $1.3 billion on advanced analytics alone in 2021. The big oil and field services companies with more experience aggressively adopting innovation and that are in favorable cash positions are more likely to continue investing in new tech. Human intervention is being scaled back. Maintenance procedures are being automated. Drones are being used to monitor real-time conditions and detect leaks. AI sensors are monitoring conditions such as temperature and vibration. At the same time, small and mid-size companies that were less mature coming into the pandemic are likely to focus spending on technology that helps them keep their businesses running.
No matter what sector your business operates within, Benchmark International is here to help. Contact us to discuss how we can help you grow or sell your business for maximum value.READ MORE >>
The real estate industry, both commercial and residential, is undergoing transformation due to the effects of the COVID-19 pandemic. People are working from home, traveling less, and some are migrating to smaller cities. Digitalization is becoming more prevalent, as owners, developers and managers of properties are seeking out virtual and touchless solutions to ensure safety and boost efficiency in a competitive market. Middle-market companies that keep up with the demand for innovation are poised to thrive under these new-normal conditions.
Real Estate Trends Expected to Continue
- Office spaces are being reconfigured to offer more space for each worker.
- Remote work is facilitating home purchases farther away from large cities that are home to corporate headquarters.
- Virtual touring experiences are becoming standard for home sales.
- Hotels are adapting to new measures to ensure guest safety.
- Retail properties are being used for other commercial uses.
- Leasing arrangements are becoming more creative to improve liquidity and cash flow.
- The inability to have in-person property experiences are hampering due diligence efforts.
- The construction sector will continue to employ virtual tools such as 3-D modeling and site management platforms.
Remote Working and the New Office
As millions of office workers have been working remotely to help avoid spreading the COVID-19 virus, employers were somewhat surprised to see that workers were more productive while working from home. Analyses show that average workdays increased in hours and big tech companies announced that remote working would continue into the long-term future. A result of this is that companies are:
- Looking to reduce the cost of office space.
- Providing more space per worker for any necessary in-person collaboration.
- Using video conferencing setups in small team rooms to bridge home and office work.
- Implementing thermal scanners, improved ventilation, UV light for cleaning and other safety measures.
Property owners and managers of office spaces have been able to continue to collect rent payments during the pandemic. However, as unemployment rises and the economy remains uncertain, it could impact the financial markets, making property and mortgage payments more difficult. Additionally, pension fund managers for large unions often invest in office markets due to their stable rents and cash flows, but if tenants cannot pay rent, pension payments may be cut.
Residential Real Estate
Residential home buying is also changing due to the coronavirus. Prior to the pandemic, Millennials were already willing to sacrifice job opportunities to buy homes in secondary cities in search of affordable housing. A study by Redfin showed that more than 50 percent of workers in major tech hub cities would move elsewhere if their company offered a remote work option, with the desire to live someplace less expensive. New tech advancements in a more remote-work-driven world are enabling these workers to pursue both dreams. Major tech companies are recognizing the cost burden that comes with maintaining sweeping campuses in major metro areas and are leading the way in the trend to shift to remote working as more professional services companies follow suit.
How homes are being purchased is also changing. Online home shopping by Millennials was already on the rise before the pandemic, causing realtors to adapt their selling processes. Virtual reality tours and 3D floor plans are becoming standard practice. Appraisers are using drones for exterior photography. Paperwork is reduced and replaced by electronic filing and signing.
Retail Real Estate
Retail property owners have many tenants that have been forced to close due to COVID-19 restrictions and many of these tenants are refusing or unable to pay rent while closed, forcing landlords to devise workarounds and, in turn, struggle to pay their own bills. Retailers were already struggling pre-pandemic due to increasing e-commerce popularity. Now landlords are providing rent abatement periods, rent waivers, flexible payments, and interest-free repayment in order to aid in their tenants' survival.
Hospitality Real Estate
The pandemic has limited non-essential travel, as business travelers are working from home and many leisure travelers are choosing to stay home for safety reasons. The hospitality sector has taken a massive hit under these circumstances amid changing restrictions and stay-at-home orders. As economic loss negatively impacts the hospitality industry, operational priorities are shifting from personal guest experiences to the safety of guests. Economy lodging is being less affected than larger, upscale hotels because essential construction workers are still traveling to job sites in smaller markets while large conferences are cancelled and professional group business travel is being limited. Investments in new technologies by hotel operators are also crucial to the hospitality real estate industry as extensive safety measures are needed. Typical in-person processes are being replaced by digital options. Common areas are being reassessed to offer social distancing. New cleaning and ventilation measures are being implemented. These changes are expected to aid in the economic recovery in this sector.
A new era of technology is playing a major role in the construction industry. Enhanced safety protocols are being implemented in existing commercial buildings. Construction companies are embracing new technologies in the development and management of new projects. Prefabrication and modular buildings, as well as virtual construction methods, are seeing accelerated growth amid the new circumstances due to the pandemic. A recent survey showed that construction executives foresee double-digit
increases in single-trade and multi-trade prefabrication assemblies, as well as permanent modular construction, over the next few years. These construction techniques offer better project schedule performance, lower construction costs, and improved construction quality.
No matter what sector your business operates within, our M&A experts at Benchmark International are eager to discuss your future with you, whether it’s selling your business, growing your company, or devising your exit or succession plan.
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As the COVID-19 pandemic continues to impact everyday life, the technology, media and telecom sectors are playing critical roles in keeping people connected, working, and entertained. As more people work remotely and home school, the services provided by tech and telecom companies remain in peak demand by families and businesses.
- Acquisitions are driving growth in the tech sector, and there is more investment in innovation and R&D.
- Collaborative tech is expected to see sustained growth.
- As tech companies embrace working-from-home, talent is being spread out more geographically.
- Telecommunications companies are being relied upon for connectivity more than ever during the pandemic, and the focus on 5G-network implementation is a major priority.
- Broadcast TV faces challenges amid declines in advertising and fewer live sports, but ad revenue is expected to increase as many major sports are returning to play. Digital streaming and retransmission fees could also offer new opportunities.
- As video gaming and e-sports have undergone dramatic growth spurts during the pandemic, acquisition activity is expected to increase.
In a world of billions of connected smart devices, digital technology has essentially revolutionized the global marketing industry. From social media to content marketing, the market is massive and poised for continued growth.
The traditional ad agency model now includes a major focus on digital marketing, and digital marketing agencies continue to become more prevalent and provide a wider range of strategic services and specialized areas. And more and more companies outside of the advertising and marketing industry are also developing their own in-house digital marketing arms.
In 2019, the global digital marketing market size was $300-310 billion. It is expected to grow to $360-380 billion in 2020.
On a global scale, the market size per region is:
- $110-130 billion for North America
- $120-130 billion for Asia Pacific
- $48-52 billion for Europe
- $6-10 billion for the Middle East/Asia
Online videos and mobile ad spending account for a large portion of the digital advertising space and continue to drive digital marketing spending, especially in Europe and North America. Digital out-of-home media is becoming more personalized and contextually relevant through targeted ad delivery, and location-aware and bandwidth-aware tech tools. And with the increasing emergence of 5G technology in 2020, phone streaming will reach incredible speeds and higher quality, opening up new possibilities for marketers.
2020 will be a big year for content marketing in several different forms. User-generated content will be in demand as the majority of consumers report that they find the opinion of users to be more influential than content promoted by the actual brand. This content includes anything from social media posts and blogs to web pages and testimonials.
Another huge component of content marketing is video content creation. More consumers are expecting to see video content from their favorite brands. Video also keeps audiences engaged for more time versus other types of content. Live streaming is also a growing trend, as consumers are reporting that they would prefer to watch live video than read a blog post.
Marketers are forecasted to spend $112 billion on social media advertising in 2020.
Globally, North America continues to dominate ad spending in this digital marketing sector, with the retail industry as the leading ad spender in the United States. While search remains a preference of retail marketers, video, social media, and other display formats are growing in demand to increase brand visibility. Digital ad spending in the Asia Pacific region has surpassed that of Europe, with growth driven by China due to increasing investments on technology and digital platforms. The automobile, consumer goods, and telecom sectors are the leading marketing spenders in the country.
Digital marketing has had a large impact on the commercial print side of the industry. This is causing service providers to offer more innovative value-added services such as data management and e-publishing. The demand for print services is largely driven by the retail, financial, publishing, and food and beverage sectors, especially for on-demand print materials, packaging, and other promotional materials. Additionally, increased digitalization and eco-friendly practices (such as using soy ink vs. petroleum-based ink) have lessened the printing industry's impact on the environment. Increased digitization will continue to result in more e-versions of print, such as annual reports and catalogs, and use of more online targeting channels such as email.
The size of the global direct mail market is expected to reach $94–98 billion in 2020. The use of direct mail remains high in developed regions such as North America and Europe due to comprehensive customer database maintenance. At the same time, the increased use of e-mail and mobile marketing is lessening the demand for printed direct mail materials. In smaller markets that have lower Internet penetration, such as parts of Latin America and the Middle East, the direct mail sector remains strong with demand being driven by retail, travel, and real estate. To remain competitive, direct mail providers are offering e-mail marketing and other digital marketing services at lower prices.
The global market for loyalty programs continues to grow due to increasing e-commerce, smartphone use, and online shopping customer behavior. The retail, financial, consumer, and food and beverage industries drive the demand for loyalty services, digital rewards programs, analytics, and business intel used for customization.
Mergers & Acquisitions
M&A activity regarding digital marketing and advertising agencies has high potential due to growth and high fragmentation within the industry. Traditional ad agencies and private equity firms target companies that offer solid growth opportunities. As digital advertising revenues increase, so does the global demand for more online content in an ever-connected world. Digital capabilities and relationships are a priority for traditional agencies and their holding companies as they have a need to grow their digital revenue and expand their portfolios.
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By investing in the transportation and logistics sector, global companies open up the opportunity to advance the flow of goods throughout the world. Businesses in this industry, both domestic and international, benefit from integrated supply chain networks that connect companies and consumers through multiple transportation modes within industry subsectors.
- Logistics services include the management of fleets, warehousing, order fulfillment, logistics networks, inventory, supply and demand, third-party logistics, and other support services.
- Air and express delivery provide accelerated end-to-end package delivery services, as well as infrastructure for exporters. Growth in this subsector is greatly driven by the expansion of e-commerce.
- Freight rail moves high volumes of heavy cargo and products long distances via rail network.
- Maritime includes carriers, ports, terminals, and labor involved in the transportation of cargo and passengers via water.
- Trucking moves cargo over the road by motor vehicles over short and medium distances.
The transportation and logistics industry is consistently a highly fragmented sector. This is largely due to the fact that most fleets are small and there are few barriers to entry when it comes to starting a small fleet. Another major factor is that larger carriers have difficulty retaining drivers and achieving organic growth. Owners are always looking to gain efficiencies, optimize routes and spread fixed costs across more operations. In order to do so, they must create greater scale. It is common in the transportation and logistics sector for acquisition strategies to revolve around broadening service offerings, branching out the customer base, and expanding geographical reach.
Economic and Industry Factors
Burgeoning economies drive demand in the transportation and logistics industry. More freight demand stems from strong consumer confidence and upward surges in manufacturing, resulting in more loads and vehicles on roads. When this climate is met with driver shortages, it increases transportation costs, which can reduce margins.
The Impact of Amazon.com
Amazon has greatly raised global consumer expectations when it comes to rapid fulfillment. This demand has shifted distribution patterns, pushing companies to move warehouses closer to customers. Getting products to consumers faster increases the number of touch-points along the freight network.
The introduction and evolution of new technologies in the transportation and logistics industry are addressing over-the-road challenges such as driver shortages. Long-haul robotic trucks are being developed and tested. Driverless and remotely piloted deliveries are being incepted, such as aerial delivery drones. Experts expect it to be a very long period of time before these advancements face more mainstream use, but someday in the future, the possibilities they hold will be very real.
Artificial intelligence, the Internet of Things, data collection, machine learning, and blockchain are all being used within the transportation and logistics industry to gain major competitive insights and advantages, and therefore make better decisions that improve the performance of the company.
Transportation and Logistics M&A
In the 21st century M&A market, transactions in the transportation and logistics industry are often driven by specific demographic, macroeconomic, and regulatory factors.
Sellers are motivated by:
- The desire to take advantage of a strong overall M&A market
- Volume limitations due to driver shortages, tight labor markets, aging drivers and increasing hiring costs
- Aging ownership without a succession plan in place (usually companies with <$50 million in sales)
- Unease about industry regulations around safety, driver hour limits and logging devices
- The use of cross-border deals to counter negative impacts on operations, access new markets, and protect supply chains, as remaining agile in a globalized market is critical
Buyers are motivated by:
- Leverage of economies of scale in order to maintain profitability
- Capitalization on domestic economies with strong growth potential
- The need to hire drivers while facing tight labor markets and rising hiring costs
- Acquisition of smaller companies that expand service offerings
- Use of various asset models to free up capital and invest in better equipment
A high level of activity in M&A in the transportation and logistics industry is contingent upon suitable timing in a growing economy, low interest rates, and widely available capital. It usually takes up to nine months to complete an M&A transaction, so timing and forward thinking should be considered when deciding to take your company to market.
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Around the world, the global education industry remains shaped by population growth and access to education, and driven by new technologies and service offerings.
- Solutions for professional education, teacher development, improved online and adaptive learning, and language training (especially English) are always in demand.
- Online learning technology and the need for corporate workforce training drives increases in corporate spending on outsourced training programs.
- Smartphone-only Internet users are reshaping learning models.
- Enrollment in pre-primary education continues to rise as it has proven to show positive long-term results.
- In primary and secondary education, technology investments directly impact school expenditures.
- Higher education is being forced to adapt in the wake of changes to jobs, skills and increasing student debt.
- Learning Management Systems are shifting the teaching focus away from content and onto learners.
- Newer offerings include cloud-based student information systems, digital tools and learning platforms, and data reporting and analytics.
The global education market is expected to be valued at $10 trillion USD by the
In today’s digitized society, as education becomes more globalized, it presents newforms of private, for-profit involvement. In the global education industry, less than three percent of overall education expenditure is spent on technology. This is expected to increase in the future, yet at an alarmingly slow rate, giving investors a favorable position to get in on
Mergers and acquisitions opportunities are heavily influenced by the possibilities created by new innovations in digital education, instruction, and credentialing. The global education sector’s biggest strategic performers are diverse companies that continue a shift towards digital services and away from print. Target companies within the education landscape that are in drawing investment include those that provide adaptive learning solutions and assessment products, such as software that facilitates testing and scoring. Other areas that appeal to buyers include education-market-focused infrastructure software and English language learning solutions.
Education Infrastructure Software
Modern education-focused infrastructure software has the power to transform learning environments for students and teachers both inside and outside the classroom by balancing technology across all locations. The approach is comprised of cloud computing, enhanced privacy and security, connectivity, storage, and manageability. Additionally, virtual infrastructure not only simplifies troubleshooting, but it can reduce costs for institutions by reducing overhead through the reduced impacts of having to frequently replace hardware. With support of more devices, teachers can better tailor learning experiences to students learning needs, and a more collaborative learning environment can be created.
Global English Language Learning Market
The global English language learning market is expected to exceed $22 billion USD by the end of 2025. These programs are in growing demand due to globalization, urbanization, and an appetite for improved education and job opportunities. The escalating numbers for student enrollment in graduate schools in English-speaking countries is deemed to be a primary contributing factor to growth in this market. In higher education, universities in the United States, the United Kingdom, Australia, and Canada require applicants to pass language tests such as the Test of English as a Foreign Language (TOEFL), Graduate Record Examination (GRE), and International English Language Testing System (IELTS). This drives students to enroll in English language training programs, leading to notable demand for them in countries (such as an India and China) where the number of graduates relocating to English-speaking countries for advanced studies continues to grow at a significant rate.
The global market for digital English language learning is comprised of both regional and international manufacturers. As the international companies expand their reach, improve quality, and lower prices, the regional firms struggle to compete. Such an intensely competitive market for innovation and service extensions increases the number of M&A transactions.
An Industry Continuing to Evolve
Innovation in education requires capital and government funding is limited even in the wealthiest, most developed countries. Private equity and M&A can strategically create and grow companies of scale in the education sector. Larger size means more attractive acquisition opportunities, more prevalence, and more potential for transformation in the industry and its subsectors.
Advancements that are impacting and will continue to impact this industry include:
- Artificial Intelligence, virtual reality, and unified data solutions
- Online education
- Specialized curriculum start-up companies
- Improved curriculum storage and peer-to-peer sharing platforms
- International schools
- Digital classrooms
- Chat bots and voice enabled hardware
- English language training
- Enhanced admissions management and student retention
- Global school networks
- Improved vocational training
- Alternate university models
- Online program managers
- Job training boot camps
- Primary education mobile apps
- Increasing availability and free access to academic publishing resources
- STEM and coding
- Gaming and simulation
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Two of the most transformative factors in the world of automotive and technological development have been the advent of ride-hailing platforms and autonomous vehicles. They each create various mergers and acquisitions opportunities both individually and in concert with each other in various capacities on a global scale.
Ride Service Companies
Ride services—also known as ride hailing and ride sharing—will continue to create opportunities for M&A in decades to come as their popularity around the world continues to increase. Uber, DiDi Chuxing, Gett, Grab, and Lyft are some of the leading firms in the market. As more companies emerge, the market becomes more and more fragmented. The right M&A transactions can help companies increase market share and improve service quality.
It can be relatively inexpensive to start up a ride-hailing company. After all, they depend on contract labor that does not rely on special skills or loyalty, and are powered by free mobile apps that easily bring their service to the public’s fingertips. While this makes it easy for more smaller firms to enter the space, it also creates ripe opportunity for M&A activity in an incredibly competitive industry that has been predicted to one day be dominated by only a couple of major players.
The ride hailing sector is not unlike other transportation industries, as it is subject to strict laws and regulations that can make M&A challenging, meaning that deals in this space require added due diligence.
A strong investment climate lies in the sector of autonomous or self-driving vehicles. Traditional auto manufacturers are investing billions of dollars and stepping up efforts to try to catch up with advancements already pioneered by the big tech companies. It is both faster and easier to acquire existing technologies than to try to reinvent the self-driving wheel. While they retain the advantage of being capable of the mass production of vehicles, it is expansion of their capabilities that is a major driver of M&A.
Companies at every level of involvement in the auto industry need to adapt their strategies, from manufacturers to suppliers to retailers. M&A is a necessary strategy for all existing industry players to maintain any foothold as newer digital companies transform the space. This includes rethinking business models and emphasizing innovation to establish themselves as a leader in the future.
Autonomous vehicles also present the possibility of major ramifications for other industries.
- Law enforcement: With self-driving cars programmed to obey traffic laws, fewer police resources may be needed on roads and less local revenue could be earned from citations.
- Insurance: With fewer accidents come fewer insurance claims, reducing the cost of insurance premiums.
- Healthcare: Ideally, fewer traffic accidents can reduce reliance on emergency services.
- Air & rail: Using autonomous vehicles for long-distance travel can mean fewer passengers on airplanes and trains.
- Advertising: Withdrivers turned into passengers, their attention can be shifted from audio to visual, and advertising could be targeted by location.
Many companies around the world have demonstrated enthusiasm over the prospect of disrupting public transportation as we know it, and have been eager to invest in companies that are focused on bringing autonomous vehicles into this realm. This includes robotic taxis, driverless shuttles, electric car ride services, and taxis that are not equipped with steering wheels or pedals.
Countries leading the way in the development of autonomous driving technology include Norway, Singapore, the United States, Germany and Israel.
Many challenges exist before the proliferation of autonomous vehicles on roads everywhere is a real possibility. While careful planning and programming goes into the technology that makes these vehicles both operational and safe, there are unexpected scenarios that are not easy to predict or take into account. These situations include other drivers’ errors such as going the wrong direction or making illegal maneuvers that can confuse the technology that a self-driving car relies upon. Essentially, the radar and high-resolution cameras in autonomous vehicles are able to detect and identify objects (such as a bicycle or pedestrian), but it cannot predict what those objects might do next.
These types of uncertainties, along with the strict regulatory environments surrounding self-driving vehicles, can also make the M&A market in this sector more complicated to navigate. It is prudent to consult with M&A experts regarding the opportunities in this area.
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The global leisure industry is comprised of restaurants, bars, hotels, casinos, sports facilities, travel agencies, tour operators and other customer-focused business segments. This industry is subject to some very specific influential factors such as geopolitics, weather conditions, natural catastrophes, fuel costs, and changing consumer habits and demands. Technology also plays a key role in how people plan their activities and choose to experience them. This presents new opportunities for growth, and at the same time, new challenges.
M&A can be used as an effective solution for vertical integration to fill gaps across the value chain and to offer more efficient global platforms in the leisure industry
and its subsectors.
Opportunities and Challenges
The impacts of new technologies can be beneficial to businesses, but they also present new obstacles. The good news is that people are never going to stop wanting to enjoy themselves. It’s just a matter of how they go about it that faces significant changes.
- Sports Venues: With large and complicated physical infrastructures, sports facilities aim to attract more fans, fill more seats, and maximize returns. Technology aids in getting fans to engage more and spend more money both in person and from their devices. The Internet offers viewers immediate access to scores, stats and updates. While this can enhance sports venues’ offerings, there is also the challenge of competing with home entertainment systems that allow consumers to create their own fan experience in the comfort of their own homes.
- Travel Agencies and Online Booking: There was a time when booking a vacation meant picking up the phone and calling your travel agent. But today, people turn to travel booking websites and apps to plan their trips, leading to overhauled business models. Online travel agents are looking to expand, increase their geographic reach, and be more integral to their customers’ experiences. Additionally, in the world of platforms such as Expedia, Kayak and Priceline, there remains little differentiation among brands, keeping the segment ripe for consolidation.
- The Gaming Industry: The loosening of sports-betting regulations is driving change in the gaming industry. People are increasingly able to gamble online in various capacities, and while casinos are adopting strategies to capitalize on these opportunities, there is still the prospect of less foot traffic that would have transferred to more money spent on in-house dining and other in-person gambling options. This sector is prime for consolidations and partnerships.
- Restaurants: Once a very brick-and-mortar focused sector, new technologies allow customers to opt for food delivery companies and apps to bring dinner to them rather than dining out at a physical restaurant location.
- The Cruise Industry: Cybersecurity is an important concern within this sector, as more people spend more time on their connected devices while they enjoy their cruise vacation. Personalized data-driven technology improves the passenger experience, but it also requires more integration so that more systems can share more information.
- Hotels: Web platforms such as airbnb have changed how people lodge on their vacations, moving tourism traffic from concentrated urban areas to more residential neighborhoods.
- Amusement Parks: Consumers seek out unique and immersive experiences through their tech. Theme parks are creating new partnerships to cater to these demands, and seeking out novel ways to tap into new markets. These partnerships can be less capital intensive and give businesses flexibility to adapt to changing trends.
Cross-Border M&A Considerations
Cross-border M&A transactions can involve several issues as political, cultural and economic environments evolve and regulations change. Certain due diligence factors should always be considered for these types of deals are expected to result in success stories.
- Transaction framework: This involves careful evaluation of pricing (maximized value), timing, and certainty (public reputation and proof of funds)
- Regulatory compliance: Focus on cybersecurity, foreign investment laws, national security laws, fraud, sanction violations, and money laundering
- Antitrust and competition: This includes overlaps between brands, overlaps between operations, market concentration, and specific clearances
- Technology and intellectual property: Thoroughly assess trademarks, domain names, IP rights, third-party licensing, existing claims, infrastructure, loyalty programs, data privacy laws, and databases
As with M&A transactions in any industry, there are several other areas that must be considered for due diligence and company valuation, including management agreements, financing, tax structures, employment issues, and other operational risks.
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The New Media World
The media industry has undergone several major transformations in the Internet age. Magazines and newspapers have been disrupted by digital publications. News consumption has been significantly altered by the existence of social media. Broadcast radio is now challenged by satellite radio, podcasting, and both free and fee-based music-streaming services. Television continues to undergo sweeping changes that come with more and more people cutting the cord, smart TVs, and the inundation of subscription streaming platforms on a variety of scales. And all of these sector trends affect how advertising dollars are being spent and how audiences are being targeted. 2020 proves to be no different, as these trends will continue to reshape the industry.
Companies and TV networks are faced with the task of inventing new offerings for delivering content in ways that facilitate direct relationships with consumers. New bundling and tiered options will be more in demand as viewers grow frustrated with having to manage various streaming options amid a crowded sea of subscription services that go beyond Netflix and Amazon Prime. Individual TV networks are offering their own on-demand services (such as HBO Now), and big industry players are getting in the game with their own digital networks such as Disney+. And the availability of tiered streaming platforms such as BritBox and Sling TV continues to grow. The major streaming networks will be faced with how to leverage an influx of competition. These options will also need to address how advertising is delivered regarding ad-free options and ad-supported video.
There are currently more than 700,000 active podcasts, and research shows that the consumer appetite for podcasts continues to thrive. Podcasts are going to be seen as a new vehicle for content and will garner more advertising money, with predictions that the spending amount will surpass $1 billion by the end of 2020.
For the Love of Data
As media companies compete for more audiences, data will become more imperative to achieving the goals of these companies. This means that the data platforms used by media companies and advertising agencies are going to become paramount. The gathering and processing of the third-party data needed to create more meaningful and personalized experiences and services for consumers will be essential to the ability to remain competitive.
In today’s social-media-driven world, users are able to generate their own content through various mobile applications such as SnapChat and TikTok. As more of these types of platforms emerge, larger parent companies (such as the Facebooks and Googles of the world) may be inclined to acquire them to diversify their offerings and expand their user bases.
As media companies continue to need more diverse content and content delivery options, it creates significant opportunities for mergers and acquisitions. This M&A activity is expected to be on smaller scales than the megadeals that occurred in the last couple of years. This is because there are fewer opportunities for the major networks to consolidate, especially as there is a growing over-supply of third-party streaming applications and the content rights are being withdrawn.
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The global Information Technology industry encompasses the sectors of hardware, software and services, telecom, and emerging tech including ‘as-a-service’ solutions under the umbrella of the Internet of Things (IoT) and automating technologies.
The global IT industry is projected to reach $5.2 trillion in 2020, with global spending growing 3.7%
As the world continues to be more digitally connected and industries become more automated, technology will remain a massively growing market in the beginning of the new decade, especially as companies focus less on cost reduction and more on innovation.
The United States is the world’s largest tech market, accounting for one-third of the total market, and exceeding the gross domestic product of most other industries. Although the US market is so large, the lion’s share of tech spending actually happens outside of the US (68%) and is made by enterprise or government entities. Western Europe is a major contributor in the global tech market, and China is also a significant player with focuses in robotics, infrastructure, software, and services.
Forecasted IT Spending
In 2020, IT spending budgets will be largely driven by the needs to upgrade outdated infrastructure, address security issues, and accommodate growth. The amount of spending and the mix of services will vary by company size.
- Smaller businesses are expected to spend more on hardware such as servers and laptops.
- Mid-size companies will be spending more on mobile devices.
- Larger corporations will spend more on managed infrastructure IT services such as power and climate solutions.
For software spending specifically, small businesses will focus their spending on operating systems. Mid-size companies will have a larger budget for productivity software and business support applications. Large enterprises will be spending more of their money on virtualization, database management, and communications software. Cloud services and recovery software will represent major budget allocations in the coming year and cloud spend will vary by company size.
With the increasing popularity of cloud-based software and services and hybrid cloud solutions comes the increasing concern regarding cloud security. This is further reinforced by an ongoing rise in cyber attacks and data breaches. Cloud-based security solutions will remain a growing need across several sectors, especially in highly regulated ones such as finance and government. The global cloud security market was anticipated to garner $8.9 billion by the start of 2020. This need will create more opportunities for companies, entrepreneurs and investors.
The Year of 5G
The highly anticipated 5G technology will see a much more momentous rollout in 2020, in contrast to the lackluster emergence in 2019. Hundreds of millions of 5G-enabled smartphones are expected to ship in 2020. 5G will deliver significantly high speeds and remarkable data capacity to expand the financial possibilities for businesses. It is able to support billions of connected devices across sectors, allow new innovation for the IoT, Artificial Intelligence, and Virtual Reality. It will also enable a new world of autonomous vehicles and smart cities through a fully connected society, shattering boundaries to create a scalable global marketplace through unified technologies. Businesses will need to be prepared with how this new technology is going to dramatically alter the possibilities of the cloud and the need for virtualization-based networks as opposed to fixed-function equipment. While it is not going to happen overnight, 5G technology will grow increasingly more available throughout 2020, changing the availability of certain devices and transforming industrial possibilities.
Edge computing is not a new concept, as it has existed for years. However, the value opportunity that it represents across industries is enormous. 2020 is anticipated to be a highly emergent year for edge computing due to the availability of faster networking technologies such as 5G and analytic capabilities in smaller devices.
Edge computing allows data processing to be done physically closer to where the data is generated (the edge of the network) rather than at a massive data processing center, which in turn reduces latency and processes the data much faster. This opens up countless new opportunities. Additionally, this technology offers several benefits for businesses, such as reduced costs, improved energy efficiencies, predictive maintenance, increased reliability, smart manufacturing, and security enhancements.
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The transportation industry on a whole has seen major opportunities for investment thanks to a myriad of technological advancements such as self-driving cars, ride sharing and alternative fuels. As technology permeates all global industries, the aviation industry has its own unique circumstances, and must turn to acquisitions and market share to create competitive advantages in the 21st century.
Major areas of focus include aerospace, defense, supersonic travel, artificial intelligence, robotics, cybersecurity, surveillance, and communications. The idea of space exploration has become more privatized. It is not just about commercial astronauts anymore, but about making it possible for everyday people to engage in space travel. Also, urban on-demand air transportation is redefining the possibilities for how people commute to work. This technological advancement is proposed to use three-dimensional airspace to ease traffic on the ground, save commuters time and money, and provide a safer yet still relatively quiet travel option.
Aerospace and Defense (A&D)
As global A&D spending increases, so does the opportunity for M&A activity. In our digitized world, threat and risk mitigation continue to take on more importance, resulting in more mergers and acquisitions within IT, cybersecurity, and space companies.
Commercial aerospace firms are stretching their aftermarket capabilities to gain repair revenue over the lifespan of an aircraft fleet and benefit from improvements within the areas of electronics and avionics.
Private equity investors are also becoming more attracted to this sector, looking to sink capital into targets that have high growth prospects and high margins.
Aircraft Backlogs and the Maintenance, Repair and Overhaul (MRO) Market
Commercial aircraft order backlogs also drive M&A activity in the middle market, as equipment manufacturers within the supply chain must respond to the demand, and are sitting on a tall stack of orders. Over the next 20 years, around 40,000 new aircrafts are slotted for production. Major airlines have a tendency to prefer larger suppliers, so consolidation to create more efficient and reliable MROs is a tactic that ensures the orders can stay on pace without major delays. As this consolidation occurs, it becomes more difficult for smaller, independent MROs to compete, causing them to team up with larger original equipment manufacturers (OEMs) in order to meet demand and avert delays.
There is an existing and growing pilot shortage that presents a major challenge for all airlines around the world. According to Boeing, it is estimated that 800,000 new pilots will be needed over the next 20 years. More pilots are reaching the mandatory retirement age at the same time that an increasing number of people around the world are booking flights. Plus, military expansion means a reduction in the pool of military pilots that are typically sourced by commercial aviation. These factors all combine to create new opportunities in M&A in the global aviation industry through the need for pilot training and the creation of new, more efficient flight simulators, as well as the development of autonomous piloting technologies.
A New Era of M&A
M&A activity is crucial to the many new types of developments in the global aviation industry. Private equity and venture capital are needed to keep the innovations coming, alongside the pursuance of new growth strategies and market retention by existing industry players. M&A in the aviation industry has become very much about bringing new services to new markets. This changes the way competitive companies must view each other, calling for more collaboration in order to drive innovation and create value.
It is strongly advised that anyone entering into the complex world of aviation M&A obtains an advisor that has the appropriate experience to conduct proper due diligence, navigate the intricacies of the industry, create the right connections, and be familiar with the industry-specific regulatory environments.
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Mergers and acquisitions in the global insurance industry carry their share of unique challenges. There is always the potential for increased regulation, and ever-changing technologies and infrastructures can make it expensive and difficult for companies to keep pace. When it comes to cross-border M&A, cultural integration is often overlooked. These factors make the world of M&A in the insurance sector complicated to navigate.
Key Drivers of M&A in the Insurance Industry
M&A activity in the global insurance sector becomes more dynamic as a result of several contributing factors and strategic objectives.
- Companies acknowledge the need for economies of scale and seek to expand by moving into global markets.
- Lower policy rates push industry players to consolidate to maintain profitability and find ways to remain competitive by uniting two synergistic companies and gain more value through scale efficiencies.
- Stagnant domestic markets result in cross-border targets.
- Organic growth cannot be relied upon to meet company goals.
- Heightened interest comes from a broad range of backers, from hedge funds to international investors.
- Low profitability results in low investment yields.
- Insurers need ways to spend large cash reserves.
- They need to integrate new technologies (such as mobile apps and big data) to revitalize flat business models, improve internal capabilities, reach customers, or gain market insights.
As with all M&A transactions, meticulous due diligence in the insurance industry is critical to a successful deal. While many due diligence topics for an insurance company overlap with that of all types of M&A transactions (property, tax records, employee issues, etc.), the insurance industry is subject to some unique scrutiny, such as:
- Regulatory issues (licensing, permitted practices, regulatory filings, and interactions with government agencies)
- Assessment and adequacy of reserves
- Structure of investment portfolio
- Underwriting and claims administration
- Market conduct and producers
- Reinsurance collectability
- Intercompany agreements
- Data security
- Compliance with privacy laws
Crafting of the purchase agreement in insurance M&A transactions is also an important part of the process. If done correctly, it will address both the unique nature of insurance companies and the regulatory environment in which they operate.
Indemnification provisions within insurance M&A agreements are similar to that of other industries, with exception of a few differences. An M&A transaction can call for unlimited indemnity protection for specific circumstances in which the buyer asks the seller to assume the risk. Common areas for specific indemnities include:
- Policyholder claims for extra-contractual obligations or claims that exceed policy limits
- Litigation specific to the insurance industry (i.e., class action policyholder lawsuits or regulatory actions for improper business conduct)
Cultural Integration in M&A
Global insurance executives have reported that overcoming cultural and organizational differences following a deal has been a significant challenge.
In order for cross-border M&A to be successful, leaders must look beyond financial motivations and consider how cultural integration can result in improved synergy and innovation. This can happen in several ways:
- The acquirer can completely assimilate the culture of the target company.
- The acquired company can maintain its own identity and independence.
- The two can meld, creating an entirely new culture.
The route a company chooses to take depends on the size of the two companies, the post-deal organizational structure, and the advantages generated by different cultural traits.
When companies carefully take culture into account, they can greatly benefit from the positive outcomes and lower the risk of failure in M&A. A cultural assessment should be conducted alongside due diligence far before the deal nears completion. This assessment should study the geographic locations, management styles, work habits, and attitudes of both companies. Successfully uniting employees from diverse backgrounds calls for a customized process that should not be rushed and includes clear and honest communication.
Steps for Success
When insurance companies are considering M&A for financial growth, geographic expansion, and bolstered competitiveness, there are certain steps that leadership should take to find the right type of deal and ensure a positive outcome.
- Assess the future of the industry, the trajectory of the business, and where the two align.
- Plan for different scenarios that could trigger economic changes in the next one to two years.
- Craft an M&A strategy that aligns with ownership’s goals.
- Choose target companies consistent with leadership’s overall strategy and long-term goals. What seems like a good idea today may not make sense for five to ten years down the road.
- Remain cognizant of the changing tax and regulatory environments.
- Evaluate in-house corporate development and overall integration abilities.
If you are ready to grow your company, sell your company, find a new investment opportunity, or plan your exit strategy for retirement, give us a call at Benchmark International. Our esteemed M&A advisors will craft strategies that deliver outstanding results for your plans for the future.READ MORE >>
The chemical manufacturing industry converts raw materials such as gasses and oils into chemicals such as ethylene, propylene, methanol, benzene, chlorine, and paraxylene. These chemicals are feedstocks for value chains that produce a wide array of intermediates, plastics, and performance materials that are used to create more than 70,000 registered productsaround the world. It is an extremely diverse and complicated industry. Because many of the industry’s products are intermediates, the customers of chemical companies are often other chemical companies.
Among the many factors that influence multi-billion dollar investment decisions include energy market trends, global economic growth, and regional trade dynamics. Investors seek sustainable competitive advantages regarding the costs of energy and feedstock, technology and scale, proximity to markets, and degree of integration.
Mergers and acquisitions have been a long-time tactic used among chemical companies to create growth, change strategic course, and consolidate segments. In an industry that has seen major expansion, certain factors can complicate M&A. This includes the substantial size of some transactions and merger-of-equals deals that are more complex to carry out.
Key drivers of M&A in the chemical manufacturing industry include:
- The pace of organic sales growthin sub-segments
- Consolidation driven by a need for innovation and fewer opportunities to differentiate from competitors in high-value and specialty-chemical areas
- The state of capital-markets returns and a campaign for higher valuations
- An abundance of capital and private equity interest and access to low-cost finance
Digitization & Optimization
Technology continues to transform all industries in the modern world, and the chemical manufacturing industry is no different. Data management through advanced analytics is enabling plant optimization across sites, improved supply chains, and infrastructure synergies. Digital solutions reduce downtime and costs as a result of maintenance and repairs. Sensors monitor plant and warehousing conditions, improving logistics. Also, a vast amount of field operator workload can be transferred to automation and robotics, allocating people resources elsewhere in the business and creating more opportunities for up-skilling. Implementation of these technologies results in revenue improvements.
The Circular Economy of Plastic Waste Recycling
Plastics production accounts for more than one third of the chemical industry’s manufacturing activities. But only a small percentage of these plastics are being recycled, resulting in resources that are lost forever into landfills. Global plastics waste volumes are expected to reach 460 million tons per year by 2030. Public outcry for sustainability is rising and raw material supplies are growing tighter, forcing the chemical industry to adapt on this issue. New plastic recycling methods offer new opportunities for value-creating growth for petrochemicals companies. Instead of focusing on the problem that plastic waste creates, companies are starting to recognize the billion-dollar profit pool it represents through new types of businesses, resulting in an entirely new landscape for M&A activity.
Additionally, activist investors are playing a larger part in the chemicals sector. Activist investors attempt to create change within a company by purchasing a large number of shares or board seats. These players are emerging influencers of M&A activity and they have an ever-increasing role in the chemical industry through restructuring initiatives. This creates new challenges for industry executives because long-term strategic planning is not a typical priority of activist investors. Although activist investors are capable of delivering solutions that add value, they usually are more interested in shorter-term, higher valuations and results. This often results in cost-cutting measures, shareholder buybacks, and the splitting off of company divisions.
Successful Chemical Industry M&A
Deals that employ proven M&A best practices will yield higher total returns to shareholders. Capturing the full value potential of a deal requires specific industry knowledge and expertise. To craft a successful deal in the chemical sector, sellers should enlist the advice and methodologies of dedicated M&A experts such as those at Benchmark International. They should also:
- Monitor the field to identify potential opportunities
- Review their portfolios to ensure current assets fit their core business
- Look for gaps that may need to be filled for fast action when opportunities arise
- Prepare non-core businesses in order to maximize value from a deal
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“Big data” has revolutionized the once traditional methods of analyzing data, making it possible to source more data at a much faster rate and with a great deal of variables. Companies that curate these massive databases do so to help businesses across all industries make more carefully calculated business decisions.
Big data sources revenue from software, hardware and professional services. It encompasses security, storage, infrastructure, networking, discovery tools, applications, and analytics, just to name a few.
The power of big data has grown with the widespread use of smartphones, social media and apps, and its technology continues to grow into edge environments, such as network nodes and industrial machines. Data is flowing between organizations of all sizes to help save time, save money, improve relationships, provide valuable insights, and advance technology. Big data is a major player in automation, artificial intelligence, cloud computing, and the Internet of things—innovations that are impacting virtually every industry in the world.
In an increasingly digitized society, everyone is looking to get a piece of the data pie. Technology companies are built on and around data. Advertising agencies look to acquire data companies in order to gain a competitive edge when it comes to understanding consumer behavior and targeting ads to audiences. Healthcare companies are spending billions on data companies to transform everything from precision medicine to medical records. In education, teaching and learning methodologies are being transformed by the use of big data. Mergers and acquisitions firms are using big data to improve target company searches and results. Essentially, there is no industry that is not somehow touched by the use of big data, and that results in sweeping opportunities for M&A transactions.
Big Data’s Impact on M&A
While individuals, companies and governments across many different business sectors are using big data more frequently, new techniques are making it possible to analyze big data more effectively. This can have a significant effect on certain areas of M&A, such as strategy, business model validation, and valuation.
- M&A strategies include value creation, operational synergies, risk arbitrage, and company turnaround. An M&A strategy is defined by the goals of the company, the skillsets of the M&A team members, and market factors that determine timing and viability. These factors are becoming more data driven in the making of strategic choices.
- Big data is greatly improving M&A target searches and screening processes. Better screening can lead to better matching of buyers and sellers, leading to a higher percentage of successful deal closings.
- Big data is making it possible to get a more detailed analysis of a company’s core business model regarding growth, market patterns, customer preferences, and market reaction to products.
- Combining big data with market-based valuation techniques will make it possible to extract multiples from much wider market databases. It will also make it faster and more reliable to compare a target company and the company’s valuation reference set.
Regulatory and Privacy Issues
While big data offers major benefits for companies of all industries—with benefits that are passed on to customers through a heightened understanding of their needs—there can be certain challenges when it comes to legal issues that concern privacy, government regulations, international access, and increased scrutiny of information collection practices.
A prime example of what big data must contend with is the changing privacy laws in Europe. In 2018, the European Union’s General Data Protection Regulation (GDPR)replaced an older law from 1995, creating a new regulation for privacy that affects organizations within the E.U., as well as organizations outside of the E.U. that offer goods and services to residents of the E.U. In addition to requiring clear privacy notices for users, the law also requires that organizations give 72-hours notice of a data breach. Users must also be given certain information about how their data will be used and are allowed to request deletion of their content.
The GDPR law is limited in that it only regulates data pertaining to individuals and not organizations, but it does have the potential to limit the type of data gathered. With such a rapidly growing industry that affects so many people and industries, it can be expected that other countries will take similar actions to regulate the use of big data, especially in the United States.
We do things differently. Please reach out to our M&A specialists at Benchmark International if you are thinking of selling a company in the middle and lower middle markets. We will formulate a partnership that works in your best interests, using our unique databases to thoroughly identify every possible option until we find the perfect solution for you and your business.READ MORE >>