(Bloomberg) -- The emergence of a new geopolitical order in the coming years will help to drive cross-border mergers and acquisitions, according to senior dealmakers at the World Economic Forum in Davos.
“From a US policy perspective, hopefully we will see the emergence of a US-European super block that rearranges the global order and has significant implications for M&A transactions,” Peter Orszag, chief executive officer of financial advisory at Lazard Ltd., said on a panel Tuesday.
Countries’ shift toward strategic autonomy and a desire to relocate supply chains in the wake of Russia’s war in Ukraine will underpin the trend, said Luisa Gomez Bravo, global head of corporate and investment banking at Banco Bilbao Vizcaya Argentaria SA.
“You are going to want to have not only supply chains that are secure,” she said, “but also that are placed in geographies that share the same values.”
Even before Russia began its war in February, dealmakers were growing wary of the prospect of rising inflation and slowing economic growth. Global transaction values stand at $1.7 trillion this year, down 17% on the same period in what was a record-breaking 2021, according to data compiled by Bloomberg.
While acknowledging the challenges, the Davos panelists said it wasn’t all doom and gloom for M&A in the near term. The corporate world’s need to address the immediate challenge of climate change will continue to be a strong spur for divestments and acquisitions.
“Moving from black to green is going to be a long, complex transition process,” said Manvinder Singh Banga, a partner at buyout firm Clayton Dubilier & Rice. “Wherever there is complexity, there is the opportunity to be investing at the right price.”
Another driving force for dealmaking will be companies’ desire to bulk up so they have the scale to invest in new technologies.
“Arguably the optimal size of a firm has gotten larger over time,” Orszag said. “It makes more sense to be bigger in today’s world given the benefits of technology.”
©2022 Bloomberg L.P.
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