M&A activity sees cautious rebound before end of 2023

19 October 2023 Consultancy.uk 3 min. read

The quarterly number of global merger and acquisitions has risen for the first time since the start of 2022, suggesting the market may finally be beginning to rebound. The annual number of deals is still massively behind the last two years, though.

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.

Now, one study from WTW suggests that sentiment in the market may finally be starting to turn. According to the firm’s quarterly deals performance benchmark, global mergers and acquisitions (M&A) activity increased in the third quarter of 2023, with volume rising by 16%.

M&A Quarterly Analysis Volume (number)

Every region saw an upswing in deal activity, with 151 deals over $100 million in value completed during July to September, making it the busiest quarter of the year so far. However, while there was a rise in activity in general, values continued to flatline, with moves valued over $1 billion seeing a steady decline in volume – consistent with a trend beginning back in 2021.

The third quarter of 2023 saw just 32 such deals close, with continued uncertainty making the hefty price tag a risk few investors are willing to countenance. In contrast, for the same quarters in 2022 and 2021, 50 and 67 large deals were completed, respectively.

Head of Corporate M&A Consulting Great Britain at WTW, Jana Mercereau, commented, “Rising interest rates translating to higher financing costs, increased antitrust scrutiny and a more cautious attitude from lenders have been driving the sluggish pace of bigger, more complex deals. While it is too early to call a comeback, the recent rebound in deal volume across regions indicates pent-up demand, with M&A activity anticipated to improve as deal makers enter the final and busiest quarter of the year.”

The recovery might have been greater, but for the fact that investments continue to deliver relatively poor returns in the current market. With the exception of the energy and power and industrials sectors, where M&A deals recorded a marginally positive performance of 1.5% and 1.9% returns respectively – compared to non-acquirers in their markets for the year to date – all other industries underperformed. These included financial services which saw stocks underperform by -7.2%, and the continuously hyped high technology sector, where investments flagged by -18.5%.

The news comes at a time when businesses remain relatively positive about their prospects thanks in part to AI investments could boost profitability. However, there are signs that some hopes that AI investments could offset inflation concerns are fading, with mounting concerns that AI may be presenting a bubble – like NFTs and cryptocurrency before it – where investors inflate the value of companies which collapse before the potential of AI can actually be monetised.