M&A deals sink to new lows amid protracted slowdown
The global market for mergers and acquisitions deals has continued to tumble, amid tough trading conditions in leading markets across North America and Europe. As a result, the world the smallest number of deals worth over $100 million since the end of the Great Recession.
The ‘cautious optimism’ with which industry experts applied to the global mergers and acquisitions (M&A) market at the start of 2023 has long since faded into quaint memory. While some key markets have continued to experience demand through the following months, activity has never come close to the record figures of 2021.
In the optimistic year – which saw markets hoping for a return to ‘normal’, with the advent of a Covid-19 vaccine – investors with dry powder from the lockdown months engaged in a splurge which saw 1,047 deals worth more than $100 million take place. Since the close of 2021, however, the number of deals seems to have been locked into a terminal decline.
According to data from WTW, in partnership with the M&A Research Centre at The Bayes Business School, this has now seen quarterly deal rates sink to levels last seen at the height of the pandemic. In the second quarter of 2023, only 130 deals were concluded – comparable with 121 in the third quarter of 2020. Worse still, though, the reading for the whole of the year’s first half suggests that the deals market could be on course for its lowest levels of activity since the global financial crisis.
Only 280 deals worth $100 million were pushed through in the first six months of 2023 – the smallest number since the 131 of 2009’s first half, at the tail end of the Great Recession. Barring an exceptional uptick in the second half of the year, this could well see deal activity slump to its poorest annual level in 13 years. And according to WTW, some of the same issues which led to that previous bump could be at play in the M&A market’s current decline.
WTW’s UK Head of Corporate M&A Consulting, Jana Mercereau, said, “A perfect storm of higher inflation, interest rates, capital costs and greater regulatory scrutiny, combined with major geopolitical headwinds and a banking crisis, have triggered a steeper drop-off in M&A activity than anticipated by the market.”
It seems that buyers are already looking to new frontiers to fulfil their M&A needs amid this difficult environment. The median value in deals for the first half of 2023 is $350 million – almost half the going rate one year before, in the first half of 2022, when it sat at $385. While Europe and North America still command figures above the global average – at $363 million and $391 million respectively – there has clearly been a global shift in priorities among their suitors, who are now more willing to pay premium prices for firms in Asia-Pacific instead.
While Asia-Pacific still saw a 25% drop in volume, from 72 deals compared to 96 in the first half of 2022, deal performance in the region is keeping the M&A market more consistent than North America or Europe, as well as attracting higher prices. During the first six months of 2023 Asia-Pacific buyers continue to outperform the wider regional index by +10.9pp – and subsequently attracted a median asking price of $402 million in the same period.
Mercerau added, “Buyers have had to shift gears to adapt to a more cautious M&A environment, although deal conversations have continued throughout this period of uncertainty. With these disruptive trends expected to continue into the second half of 2023, potential buyers will be kicking the tyres a bit harder as they seek deals to address strategic priorities, expand into new markets and fill capability gaps.”
