How to navigate the changing landscape of carve-out deals

M&A activity saw a buoyant resurgence in 2021, as activity slumped in H1 2020. As the world emerged from the coronavirus pandemic early 2022, activity remained strong even if slightly lower than 2021’s pent up demand. However, not all of the world has emerged from the pandemic, and as demand has outstripped supply in the global economy, many countries are facing high interest rates as central banks battle to control inflation. This compounded with conflict in Ukraine as sent many commodities skyrocketing – putting a squeeze on businesses overheads as they seek to balance an increasing cost base with price inflation. Many, including the Bank of England, predict recession; a drying up of capital, and M&A activity focused on businesses which are in distress. As large corporates did so during the last global recession, we are already experiencing an upward trend of non-core divestitures, as management teams seek to protect the core operations and sure-up balance sheets. All of this points to an active carve-out market, and with an estimated $1.3tn of dry-powder still available, funds will have the ability to acquire well into 2023 and 2024 as interest rate rises start to take hold on available capital. We outline in this deck our considerations to buyers and sellers in this market; what to look out for during diligence and how to protect and deliver value in the longer term.