May 2, 2022
Uncertainty about the future has dominated headlines in the last two years. On a global level, the COVID-19-related restrictions and, more recently, the Russia/Ukraine war have resulted in ripple effects and, in some cases, tsunamis that will be felt far into the future. The longer-term extent of these knock-on effects is unknown. Futurists therefore dedicate their work to scenario planning, to imagine plausible futures based on the so-called ‘known unknowns’. This is exactly what Translink and The Institute for Futures Research at Stellenbosch Business School (IFR) has explored in the first of five sector reports entitled Tomorrow : 2050 Alternative Futures. The first iteration focuses on the futures of industrials.
Which future do you prefer?
A big part of the report is imagining the implications each plausible future could have for M&A. Henrik Schrøder, Head of Translink Industrials Group and Managing Partner: Translink Denmark, and Maurits Hesseling, Managing Partner for Translink International and Translink Benelux, unpack the impacts.
FIRST MOVERS WIN
In this future, countries keep their critical strategic nodes but the speed of entry of new players into the market stays sluggish, with existing players manoeuvring their first mover advantage to leverage and cement their market dominance.
What this means for M&A: Schrøder explains, “This is the scenario we’ve seen for the last couple of years. Despite the trade war between China and the US and global exclusion of Russia from international trade, there’s been little in the way of government control and constraints. This means the supply chain will continue to be globalised, with incumbents investing in other existing players to acquire access to market and scarce resources – raw materials and human talent. Free movement of capital means there’s continued need to invest funds, which should catalyse significant demand for SMEs.”
In this future, we see significant exploitation of critical nodes of a supply chain. Despite challenges, incumbents continue to dominate manufacturing and bolster their stronghold. ‘Killer acquisitions’ lock in the benefits for existing players along with other strategic moves; this means new entrants don’t last long-term.
What this means for M&A: Schrøder says, “Despite more government interventions, existing players keep their stronghold. Increased government control and constraints could increase protectionism and thereby reduce globalisation and the number of cross-border transactions. This may also lead to less global competition, with monopolised markets further reducing M&A activity – and creating a tough environment for new entrants to thrive. In a more limited, protected market, vertical integration could be a means of growth from a supply chain acquisition perspective, where companies acquire customers and suppliers.”
ASSISTED FIRMS WIN
In this future, incumbents lose their dominant position and new entrants thrive due to myriad enabling factors, from successful G&EB intervention and the creation of monopolies at economic bloc level, to the implementation of powerful public-private partnerships and a focus on developing countries and skills development. Joint ventures with SMMEs in developing countries are key. However, critical nodes of supply chains are exploited.
What this means for M&A: Hesseling explains, “In this scenario, we expect the M&A market to be dominated by local champions, with our systems protected by the governments and economic blocs. We foresee more public-private partnerships and international collaborations. Horizontal mergers at economic bloc level are likely to establish regional champions, and we may see many joint ventures between global players in the traditional supply chains, and between players from developing countries with shared infrastructural needs.”
In this future, the supply chains stay reasonably free from exploitation, and we see new entrants with dynamic offers win – especially those that capitalise on shifting boundaries, faster product development, and the benefits brought on by collaborative clusters with global tech players.
What this means for M&A: Hesseling adds, ”Innovative entrepreneurs – like SpaceX and Tesla – will constantly shift their boundaries. The M&A market will focus on smarter deals, meaning the joining of forces with flexible companies that are non-traditional and contrary to existing business models. Players will need to combine the old industry with the new to stay ahead in the market.”
Background: More on how the futures were devised:
The study identified two critical driving forces that may exert the greatest influence over all the other factors that could shape the future. Professor André Roux, Head of the Futures Studies Programmes at Stellenbosch Business School, explains, “We deep dived into all the driving forces that could influence the industrials sector. Intensively analysing these revealed two major scenario-shaping factors: Weaponised interdependence and the continued success of incumbents.”
Roux describes Weaponised Interdependence as ‘the exploitation of control over critical nodes in the global economy to exert geopolitical leverage over competitors’. This is a factor already playing out across Europe and between the US and China. The other key driving force – the continued success of incumbents – Roux describes as ‘the level of continued success that existing players in the market could enjoy’. Again, this is a factor already restricting companies operating in anti-competitive markets. These two factors were used as the basis for the alternative futures.
To find out more about each scenario and the M&A implications, read the full report. For more information on how Translink is ideally positioned to advise companies in the industrials sector now and into the future, visit https://www.translinkcf.com/