Global M&A rebounds as 2024 commences

25 January 2024 Consultancy.uk

The number of high value merger and acquisitions fell by 27% in 2023, after pressures from the global economy saw investors favour caution in their dealings. However, when they were willing to spend, they spent big – with the average deal value rising by $25 million on 2022’s levels.

The ‘cautious optimism’ with which industry experts applied to the global mergers and acquisitions (M&A) market at the start of 2023 swiftly dissipated. While some key markets continued to experience demand throughout the year, with activity involving deals of more than $100 million still declined for the second consecutive year.

After the record figures of 2021, analysis from WTW has shown a 27% decline from the 853 deals of 2022. The 619 deals that did take place reflected a decline for deals in every geographical market – though the fall was most drastic in Europe, where the number of M&A moves worth $100 million declined from 203 to 117.

M&A Yearly Analysis Volume (number)

Source: WTW, Quarterly Deal Performance Monitor

Of the sectors examined by WTW, meanwhile almost all saw this decline represented in their numbers. Most dramatically, financials saw a fall of 52 deals, while even high technology – amid the renewed hype of AI and the Internet of Things – saw 35 fewer deals in 2023. Only telecommunications saw a sparse increase of M&A activity, from 12 deals in 2022, to 12 last year.

Further boosts in global inflation look to have impacted M&A activity hardest in 2023. While the number of deals fell, their average value rose – from $1.335 billion in 2022, to $1.390 billion over the last 12 months. However, as inflation slowed at the end of the year, some of WTW’s figures suggest this trend might finally be bottoming out.

The second half of 2023 saw a consistent growth in the number of M&As completed with a value over $100 million. With 188 deals completed in the fourth quarter, the level of activity in the market was its highest since the end of 2022 – and could suggest a change of sentiment heading into a new year.

Global M&A rebounds as 2024 commences

Source: WTW, Quarterly Deal Performance Monitor

Jana Mercereau, head of corporate M&A consulting for WTW in the UK, there are a number of factors which may boost this in the months ahead. While inflation and the cost of financing seem to be stabilising, there is also a “record level of dry powder waiting to be deployed” after two slow years. That is not to say there are no further headwinds to contend with, though.

Mercereau explained, “It has been a tough 12 months. M&A deals have been weighed down by geopolitical conflict, recession fears, rising interest rates and the high cost of capital. Potential for disruption in 2024 remains considerable, exacerbated by a packed election calendar and a complex regulatory landscape raising more hurdles, scrutiny and longer timetables to complete deals. And with transactions facing greater scrutiny, however, successful bids will depend more than ever on exercising a high-degree of caution, a focus on ‘best-fit’ deals and thorough due diligence.”

Above all, however, what may determine whether investors stick or twist in 2024 will be the performance of deals, and their perceived ability to profit from their purchases. To that end, WTW’s numbers make for grim reading – as based on share price performance, companies completing M&A deals in the final quarter of 2023 underperformed the wider market by -13.6 percentage points. This result is an all-time low for any quarter since 2008, when the study began, and follows a negative performance of -8.7 percentage points in the previous quarter, which could put more investors off riskier bets in the coming period.

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