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The Impact of The Current Economic Climate on M&A

Home » Insights » The Impact of The Current Economic Climate on M&A

The Impact of The Current Economic Climate on M&A

by Khadija Tahir

Just 18% of businesses across Ireland are considering engaging in M&A activity in the next one to two years of the economic climate, with fewer than 10% considering it in the next six months, according to a new survey.

With a background of uncertainty, 69% of businesses cite rising inflation. This is the top risk for M&A in today’s economic climate, according to the data from Aon, the global professional services firm.

ESG and cyber-risk are areas of growing importance when it comes to due diligence, the survey also shows.

Aon’s M&A in Ireland report, which surveyed 290 businesses across Ireland between April and June. Reveals that just 18% of businesses are considering engaging in a merger or acquisition in the next two years.

The short-term outlook is even starker, with just 7% of business leaders saying. They are more likely to engage in M&A activity in the next six months.

This number only marginally improves when the outlook is to 12 and 24 months. With only 11% saying they were more likely to engage in M&A activity during those periods.

The vast majority of business leaders, 70% and 71% respectively. Say they don’t know, suggesting a wait-and-see attitude to any possible improvement in the current economic climate.

M&A risks and drivers 

Rising inflation, followed by high valuations (45%) and lack of sustainable investment options (43%), constitute the top three risks for business leaders across Ireland who are considering engaging in M&A activity.

The current geopolitical environment was also singled out as an area of concern, with 39% citing geopolitical unrest as a risk.

For those Irish organizations that are contemplating transactions. Key drivers include a desire to increase business efficiencies (39%), and protect and grow market share (33%).

Other key motivators include accessing skilled talent (28%), highlighting the continued impact of ‘The Great Resignation’, followed by strengthening the ability to navigate current volatility (20%).

Due diligence

In due diligence, financials have emerged as the top focus area. Human capital ranked second, ahead of legal (37%), and tax (32%).

There is also a growing awareness of the importance of ESG and cyber security within the due-diligence process. With one-third of business leaders saying that ESG standards are extremely important during a transaction.

However, more than half of respondents say they have not considered ESG to date. Showing many businesses across Ireland have yet to establish this link.

After a stellar year for global M&A activity in 2021, the landscape has changed again.

The invasion of Ukraine has also geopolitical tensions and the economic impacts are already being felt around the world.

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