By Shelle Martin, Senior Sales Director

As the third quarter of 2021 draws to a close, the M&A market remains red-hot despite - or maybe because of - the ongoing transformation of the broader business world. In the Enterprise Edition, the third roundtable in Datasite’s Corporate Development Outlook series, leaders from several of today’s fastest-growing industries gathered to share their insights.

The conversation, moderated by Datasite's Senior Director of Product Marketing Abby Roberts, looked at current trends in corporate acquisitions - including challenges as well as opportunities - and the ways that corporate development teams are changing to keep pace with an ever-evolving market.

Looking ahead to the coming year, the panelists outlined a few key factors that they expect to drive deal volumes, including loose monetary policy and the desire to close deals in advance of proposed tax reforms.

Hemant Hebbar, VP of Global M&A and Integration at Hewlett Packard Enterprise also mentioned growing interest in AI and machine learning as an important force in the tech world specifically. “We continue to see demand from our customers to do a lot more in AI,” he said, “and I assume we’ll see a lot more deals as a result of that.”

Among audience respondents, tax reform just barely edged out AI as the biggest projected source of dealmaking momentum, with Covid-driven investment close behind. Few viewers saw government financing as the most significant factor.

The experts discussed the prospects for M&A activity in their individual sectors. All parties foresaw continued growth, although Hebbar mentioned potential hurdles arising from global supply chain constraints.

Jeff Hennig, Senior Director of Corporate Development at the semiconductor manufacturer Xilinx, Inc., echoed this concern. “There’s been this huge Covid demand snapback that has created very long lead times for chips,” he said. “That’s a huge challenge when doing M&A. How do you diligence the target company’s ability to secure capacity?”

The panelists identified a few other ongoing obstacles to development, including talent shortages and rising valuations. Hebbar suggested that the latter was in part due to the continued strength of private capital markets, which lack some of the constraints on bid size that public companies like HPE must contend with. “All of our acquisitions have to be backed by detailed business cases...the higher the valuation, the harder it is for us to make the business case work.”

To clear that valuation hurdle, corporate buyers are exploring a wider variety of transaction types, including structured deals like minority investments and earnouts.

The role and structure of Corporate Development offices are evolving as well. Both audience responses and the panelists’ own experiences reflected a trend of M&A and integration teams moving under the same roof. As a result, development leaders have more insight and input into broader strategic questions.

The panelists all agreed that the increasing coordination between front-end and integration teams is enabling better focus on the big-picture goals of new acquisitions.

Hennig also mentioned the value of having the venture capital arm work side-by-side with the acquisitions team. “Some investments we make end up being companies that we may want to acquire in the future,” he said, “Having the M&A team sit in the same group as the corporate VC team allows us to understand what the investment case was.”

Asked to share some technology trends they’re keeping an eye on, the experts mentioned innovations in transistor manufacturing, data protection, and digital health.

Alwyn van Heerden, Senior Director of Corporate Development at the healthcare titan Anthem, said he expects AI-enabled predictive health tools to offer huge benefits for both patients and insurers. “For example, if you can avoid a hospitalization and receive care at home before an episode happens, generally it will be cheaper, and the patient will be more comfortable.”

Perhaps inevitably, the discussion also touched on COVID-19, the shift to virtual meetings, and their impacts on the M&A process. The participants were united in their feeling that despite some gains in efficiency, purely remote dealmaking was unlikely to be a sustainable solution.

“It’s harder to get a sense of culture and how people are going to fit in if you don’t look someone in the eye across the same table,” van Heerden said.

Hennig added that due diligence wasn’t always possible in the virtual environment. “Especially if you’re doing deep technical due diligence, it’s sometimes really tough to do that remotely.”

Taken together, the experts’ remarks paint a picture of a bullish global market for mergers and acquisitions. Novel obstacles are being met by creative strategies, and continuing technological innovations offer exciting prospects for growth. The corporate development landscape will doubtless continue to adapt to the shifting realities of a post-COVID world.