Guest contribution by Paul Vohra (Managing Director - EMEA M&A/Divestitures, Zscaler) & Shamsul Hussain (Senior Manager - M&A/Divestitures, Zscaler)
2023 continued to see effects of the geopolitical conflicts, rising levels of inflation, volatility and instability in the financial markets, supply chain issues, and companies not fully recovering to pre-pandemic levels. However, despite a slow start, deals picked up in the latter half of 2023 as CEOs began adapting to the new realities of dealmaking—stricter regulation, expensive funding, and wider valuation gaps. We foresee this appetite increasing in 2024. According to the latest EY CEO Outlook Pulse Survey (reg. req.), 98% of CEOs plan to pursue a strategic transaction in the next 12 months.
Key trends affecting M&A deals:
- Increased cybersecurity regulatory environment: Citing a global M&A trends and risks report published by Norton Rose Fullbright and Mergermarket, according to Financial Executives International, “In the US and Canada, cybersecurity-related regulations are expected to most suppress M&A activity as we approach 2024, identified by 55% of respondents among their top-two selections compared to just 16% cited by Europe and Middle East respondents.” These regulations are critical as cyber risks/data breaches lead to fines, brand damage, and technical vulnerabilities that create unforeseen costs, and more. Additionally they can prolong value capture timelines while hampering productivity and collaboration.
- Data protection strategy is critical: Similarly the report also states, “Data protection and privacy regulations, specifically, are also expected to have an impact on dealmaking, particularly in developed regions as this factor is cited most frequently in respect of M&A in Europe and the Middle East (49%), Australia (32%) and the US and Canada (31%).”
- Focus on technological innovation as driver for deals: Although 2024 will present opportunities for companies to acquire attractive and new opportunities - companies will continue to face increased deal regulation and a higher cost of capital. It’s more crucial than ever before to incorporate technology and innovation into deal strategy and M&A integration to balance out these headwinds. Technology integration has changed from the cost of doing business to a growth and competitive advantage tool. According to studies 80% of the deals which deliver above-average performance are linked to emphasis on technology.
- Increased deal volume across small to medium sized companies: 2024 would bring an increase in deal volumes with the majority of the deals falling in the small and midsize business (SMBs) category. Cybersource reported that SMBs account for 28% of cyberattacks highlighting that process of integrating SMB’s would make larger acquiring organizations more vulnerable to cyber attacks.
- Increased complexity in IT integrations: IT related risk not identified during the pre-acquisition due diligence phase would significantly impact the targeted synergy benefits of the future state organizations and in certain cases make the business case for integration financially non-viable. The complexity of the security landscape is further increased by the increasing volume of IoT connected devices in organizations which is set to surpass 75 billion by 2025. The integration of these technologies into the wider security landscape with strict governance would be critical to ensure that organizations can provide a more holistic and complete cyber security protection.
The Zscaler platform addresses cybersecurity risk by connecting resources across your organization with no need to address underlying network complexity—meaning your users are productive on Day 1. You are now able to protect the enterprise from known and evolving cyber threats and insider risk with a simple-to-operate, scalable cloud platform.
- Plan for value: Confidently focus on diligence and risk identification with Zscaler technology including: Attack Surface Analysis, Internet Threat Exposure Analysis, Ransomware Risk Assessment & Calculator, and ThreatLabz Global Dashboards.
- Discovery & fidelity: Finalize the deal perimeter by getting clear visibility of user to application, application to application and IoT/ OT demand and patterns.
- Take ownership: Rapidly enable secure access to business critical systems such as finance, HR, payroll, ERP, emails and collaboration suite on Day 1 without having to scale up hardware capacity, cost, and provisioning effort.
- Zero trust & enablement: Leverage the power of Zscaler platform to significantly enhance risk posture. Plan to achieve synergy savings by retiring hardware, MPLS and support costs. For example, Zscaler Data Loss Prevention technology provides consistent, unified security for data in motion and data at rest across SaaS and public cloud applications. Zscaler helps you reduce your risk of data loss and ensure continuous compliance. In fact, Zscaler saves organizations $2.1 million annually.
The simplicity Zscaler offers helps you get integrations done in far less time, and does so with little user disruption, lower cost, and reduced risk. Zscaler allows organizations to quickly begin value-capture activities while increasing the volume of inorganic transactions (i.e., M&A).
Learn more about how to accelerate M&A and divestitures