Fear. For the most part. That is what drives most M&A.
As much as businesses like to have a well-defined M&A strategy, a corpdev team in place and a habit of seeking M&A opportunities, most M&A that eventually happens does not happen because such setups are in place. You may have heard the saying - "You can lead a horse to the water, but you can't make it drink" - and it applies very aptly to M&A.
M&A is hard in many ways. Deal sizes and cheque sizes can be very large relative to the budgets that buyers usually deal with in their business. Not to speak of the challenges that come with winning competitive M&A processes. And the post-acquisition period often brings prolonged challenges around integration, harmony and alignment between the buyer and target organizations, and realization of goals and synergies. And then there is the scrutiny from the board, shareholders and analysts.
For the buyer, and especially its key decision makers, M&A therefore becomes a high-stakes, high-risk proposition. And given that risk appetites are neither infinite nor resilient under constant scrutiny, it is but natural that, minus a strong need for M&A, decision makers shy away from it. In other words, if everything is chugging along fine, most decision makers will not really want to do M&A.
This is true of the other side too. Decision makers there will not want to start a sale process unless there is a need they cannot bypass. And the trend of staying private for longer adds to the aversion, with companies and shareholders willing to hold out for an IPO.
Of course, there are visionary leaders, on both the buy and sell sides, who will do M&A even when there is no pressing need, probably because they are able to look further into the future than others and do M&A to disrupt the market instead of getting disrupted. But, leaving exceptions aside, most M&A happens out of fear.
Fear of getting disrupted by new technology, shifts in consumer behaviour, regulations, etc. Fear of becoming irrelevant due to consolidation in the industry. Fear of price wars and bruising competition. Fear of your own business stagnating, shareholder pressures, etc. Fear of your competitors buying out the best assets in the market.
So, whether you are a CXO, a shareholder or an advisor, make your M&A play accordingly. Beyond fear lies victory, as the catchy tagline goes.