Nov 17, 2021 | 5 min read

Newsletter: November 2021

Big Break-Ups?

Following a strong year in public markets, with record inflows into private equity and venture, the IPO and M&A markets remain active but modestly tempered as uncertainty rises. A notable development is that management teams (and bankers) are getting creative.

 

Following a period of unwinding a number of acquisitions, GE announced that it would break the company into three separate units focused on aviation, health care, and energy.   Just days later, the healthcare conglomerate Johnson & Johnson announced plans to split off its consumer products business from its pharmaceutical and medical device operations to create two publicly traded companies. The same day, Toshiba announced that it would break the company up into three businesses by spinning off its energy and infrastructure business and its device and storage business while maintaining its stake in memory chipmaker Kioxia. For three august conglomerates – over 125 years old – to announce break-ups within days of each other is an unusual turn but signals that businesses and investors value growth, focus, and agility more than pure economies of scale. There’s a lot of detail to be worked out for each company, but this appears to be a harbinger of more to come….

 

Looking Forward into 2022

As the year begins to wind down and focus shifts to 2022, we’re thinking about some of the key themes likely to define discussion through the new year:

  • Remaking the Supply Chain: Not surprisingly, the concerns elevated by ongoing disruptions to the supply chain will compel re-thinking and re-designing value chains. The whole premise of Just-In-Time manufacturing, in which inventories are kept lean with dynamic reliance on orders as-needed, is being questioned as businesses seek to reorganize their operations for resiliency. Read our paper on “Reshoring.”
  • Environmental Concerns Put ESG in the Spotlight: the increasing occurrence of anomalous weather patterns creates new challenges for forecasters and those looking to manage infrastructure. Climate change remains top of mind for many policymakers. We’ve discussed how investors’ focus on ESG (Environmental, Social, and Governance) factors compel publicly traded companies increasingly to articulate their ESG strategies. Clean energy and the electric vehicle transition continue to figure as top priorities for governments and businesses.  See our report on ESG.
  • Pushing Back Against Big Tech: there continues to be a steady drumbeat of opposition to the growing power of internet giants such as Amazon, Google, and Facebook. Concerns over antitrust violations and overreaching power over information are leading policymakers, regulators, and politicians across the political spectrum to aim at Big Tech. Additionally, individuals and businesses concerned with Big Tech’s growing dominance in video and social media lead to a plethora of newer platforms poised to chip away at market share.
  • Industry 5.0 and Human-Centric Technology: looking beyond the hyper-efficient technology-optimized value chains enabled by automation, AI, IoT, and low-power connectivity focus now turns to how best to incorporate the human element. The vision for Industry 5.0 emphasizes human-centric, resilient, and sustainable frameworks to guide the next generation of manufacturing and Digital Industry. Read the first installment of our series on Industry 5.0.
  • Cybersecurity Threats Never Go Away: as we become more dependent on connectivity in daily life, for transportation, commerce, businesses, and government, the vulnerabilities to cyberattacks become increasingly critical. Ransomware, essential attacks of infrastructure, and action by state actors will remain the most significant challenges of our inter-connected era. 
  • Decentralization and Cryptocurrencies: one of the reactions to the massive fiscal stimulus (expansion of the money supply and degradation of fiat currency) has been growing interest in cryptocurrencies as a store of value. While the $3 trillion market cap of all cryptocurrencies is still a fraction of global commodities and financial markets, expect the philosophical arguments in favor of alternatives to centralized power (and banking in particular) to continue to boost interest in Crypto and DeFi (Decentralized Finance).

 

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Momenta is the leading Digital Industry venture capital firm accelerating digital innovators across energy, manufacturing, smart spaces, and supply chain. Led by deep industry operators across its venture capital, strategic advisory, and executive search practices, Momenta has made over 50 investments, with notable exits to SAP, PTC, and Husqvarna. Feel free to schedule a call to explore your company's digital potential.