Record drop globally for M&A operations in the first half of 2023. There are two main causes of the collapse: the increase in interest rates and the climate of uncertainty. This is certified by the analysis of the Quarterly Deal Performance Monitor by WTW, a company specialized in Merger and Acquisitions services and solutions, in collaboration with the M&A Research Center of the London Business School.
M&A: deals in free fall in 2023
The report shows that in the first six months of 2023, deals of more than $100 million have suffered a significant slowdown around the world: with only 280 completed operations compared to 441 in the same period of 2022, the decrease in terms of volumes was 37%. This is the lowest number recorded in the first six months of the year since 2009.
Difficult macroeconomic conditions are particularly evident in North America, where there was a drop in volumes for six consecutive quarters, going from an all-time high of 173 transactions in the third quarter of 2021 to only 61 transactions between April and June 2023.
The analysis also highlights that, in addition to the number of M&A deals declining, buyers have too underperformed the market by 2,1%: this is a sharp decline after the positive performance of +4,4% in the first six months of 2022.
“However, despite continued market volatility, global M&A has gained momentum positive overall performance of +1,4% over the past 12 months,” the study points out.
Andrea Scaffidi, Total Reward & Executive Solution Director of WTW, said: “The current environment, negatively influenced by therising inflationand at our interest rates, capital costs and increased regulatory scrutiny, as well as severe geopolitical turmoil and the economic crisis, triggered a steeper-than-expected drop in M&A activity.
M&A: forecasts down for the second half of the year as well
“Buyers have had to shift gears to adapt to a more cautious M&A market, although the negotiations have nevertheless continued”, continues Scaffidi, who then adds: “It is expected that these trends will also continue in the second half of 2023; as a result, potential buyers will put more effort into seeking deals to address strategic priorities, such as expanding into new markets and filling key business gaps.”
Scaffidi adds that: “When inflation stabilizes and credit markets reopen, we expect that M&A transactions increase considerably, thanks to the drive from latent demand, digital transformation, portfolio rebalancing and ESG issues which will continue to be key drivers”.
“Large operations will remain difficult to execute due to mounting regulatory pressures. In fact, companies are more inclined to pursue small and medium-sized deals, easier to complete than "megadeals" and less risky in the current economic environment. But in the race for acquisitions – regardless of the scale of operations – developing faster, deeper and more focused due diligence, combined with an effective integration plan, will prove even more critical in this volatile environment”.
