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The Shortlist
Our best ideas, quick and curated | April 15, 2022
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This week, we look at the challenges and opportunities for M&A amid a more complicated outlook for 2022. Plus, the booming cross-border parcel market, and global experts on the tech trends they think will, and should, lead business agendas.
an illustration of an explosion
A banner year. Corporate dealmakers may have spent much of 2021 on videoconferences, but it didn’t damp their fervor for mergers and acquisitions. In fact, they set a record for M&A activity across the globe—with the value of deals hitting new highs, alongside an uptick in deal making by private equity (PE) firms and a rise in spin-offs of corporate units.
Big numbers. The value of large deals increased 67 percent for the year, peaking at $5.9 trillion, according to a recent McKinsey review of the global M&A market. The number of large deals by corporations, PE firms, and special-purpose acquisition companies (SPACs) also rose 37 percent from 2020. Dealmakers in the Americas led the action with 52 percent of all M&A value worldwide. Technology, media, and telecommunications was the most active sector, increasing its share of global M&A activity to 34 percent of deal value from 30 percent a year earlier.
Follow the program. Only time will reveal the winners, of course. But history already shows us which dealmakers have the odds on their side. According to a McKinsey analysis of more than 20 years of M&A data, some deal-making strategies reliably provide below-average shareholder returns: organic-growth strategy—that is, making no deals at all—followed by a strategy of selective acquisitions. Companies had a bit better chance of outperforming the averages with large, one-off “big bang” transactions. But the strategy that creates the most value for companies? It’s programmatic M&A, a carefully choreographed series of often small deals around a specific business case or M&A theme.
Confidence and capacity. Programmatic M&A isn’t a volume play but a strategy for systematically building new businesses, services, and capabilities. It’s a proactive and long-range strategy, driven by leaders’ conviction in their corporate strategy, understanding of their competitive advantage, and confidence in their capacity to execute. It’s also the best way to get the most bang out of any large-scale deals that may come along. McKinsey research shows that a company using the large-deal approach has only a 50–50 chance of turning in higher shareholder returns than their peers—no better than a coin flip. But companies that paired a large-deal approach with a programmatic one generated higher shareholder returns.
Done deals. Of course, striking a big M&A deal isn’t the end of the line. Some 10 percent of proposed tie-ups are canceled in any given year, according to McKinsey research, many due to regulatory concerns. Other deals require the parties to take measures to satisfy antitrust bodies, and companies that know the formula can ease their regulatory journey. And sometimes, bigger isn’t better: along with the rise in M&A, more companies are also deciding to improve their operating models by spinning off units that no longer help drive the core business.
How much longer can the M&A surge go? The outlook for this year is complicated, with deal-making down in the first quarter. Russia’s invasion of Ukraine has created not only a humanitarian crisis but also fears of geopolitical instability that come atop other potential headwinds, including rising inflation, increased taxes, and the possibility of greater regulatory scrutiny. While it is difficult to know what lies ahead in such an environment, strategies that have supported dealmakers in other challenging markets—increasing digitization, supply chain and environmental upgrades, and a more hands-on approach to portfolio management—remain likely to outperform alternatives.
Wanted: Digital talent to match digital supply chains
Despite progress over the past several years, companies are still struggling to build the capabilities that their emerging digital supply chains will need. If you are like the 71 global companies that responded to a 2021 supply chain survey, you probably accelerated your investments in digital technology as your supply chain grappled with COVID-19 challenges. Survey respondents also said they need more in-house digital supply chain talent to support their current and planned digitization efforts, a tenfold increase over the previous year. That need is driving them to look toward reskilling and redeploying today’s workforce to achieve the required levels of competency.
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Check out our chart of the day here.
photo of Debra Faktor
The new space economy depends on innovation—and passion
Imagine if your job portfolio encompassed small satellites, human space flight, and space exploration. As the head of U.S. Space Systems for Airbus U.S. Space & Defense, Debra Facktor oversees a team that understands all the technical aspects of building satellites and traveling out to space. In a recent interview with McKinsey, she talks about the future of the space economy, the right mix of governmental, commercial, and private interests, and what the ideal 2030 space workforce looks like.
Unpacking the cross-border parcel market’s promise | As e-commerce continues to fuel cross-border package deliveries around the world, we spotlight five interrelated trends that all logistics providers—especially parcel providers looking to enter the commercial side of the business—should understand.
Promoting diversity in French companies | Organizations in France want executives with diverse national origins and socioeconomic backgrounds, but they have had uneven success in achieving this goal. A new barometer is designed to help them.
Health equity: A framework for the epidemiology of care | Beyond the obvious benefits to patients, health equity is an enormous opportunity for pharmaceutical and life sciences companies. Here are steps they can take across communities to make the impact even greater.
glass blocks
Which tech trends will lead business agendas?
Metaverse. Web3. Crypto. 5G. These are just a few of the technologies grabbing headlines. But which technology trends truly sit atop business agendas this year? And what should business leaders keep in mind as they consider these trends?
We asked some members of the McKinsey Technology Council, a group of global experts convened to assess, track, and debate real emerging trends in business and technology, for their perspectives on these questions:
What technology trend do you predict will headline business agendas for the remainder of 2022 and why? What technology trend do you think is under businesses’ radars but merits more of executives’ attention? What’s one piece of advice you would give to business leaders as they mull incorporating new technologies into their business?
Their answers might surprise you. While some experts keyed in on bleeding-edge technologies such as quantum computing, others focused on bringing more rigor and operationalization to technologies that have been around for several years, such as machine learning. And their advice to business leaders indicates that some age-old issues, such as breaking down organizational silos and reskilling the workforce, remain pertinent.
Download the full list of global experts in industry, academia, and at McKinsey here.
— Edited by Barbara Tierney
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