M&A offers tumble in first half

Global merger and acquisition exercise skilled a major decline within the first half of 2023 as a result of rising rates of interest and financial uncertainty, in line with analysis performed by WTW’s Quarterly Deal Performance Monitor (QDPM) in collaboration with the M&A Research Centre at The Bayes Business School.

The report revealed that the variety of accomplished M&A offers valued over $100 million fell worldwide in the course of the first half of 2023, with a complete of 280 offers in comparison with 441 offers throughout the identical interval in 2022. This represents a 37% drop in quantity, marking the bottom determine for the primary half of a yr since 2009.

The difficult macroeconomic circumstances are notably evident within the North American market, which skilled a steady decline in deal volumes for six consecutive quarters, WTW reported. From a close to all-time excessive of 173 offers within the third quarter of 2021, the variety of offers dropped to only 61 between April and June 2023.

In addition to the lower within the variety of M&A offers, the efficiency of acquirers who accomplished transactions in 2023 additionally underperformed the market by -2.1 proportion factors (pp). This decline follows a optimistic efficiency of +4.4 pp within the second half of 2022. However, regardless of the continuing volatility, international M&A nonetheless achieved an total optimistic efficiency of +1.4 pp over the past 12 months.

“A perfect storm”

“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,” stated Jana Mercereau (pictured above), head of company M&A consulting for Great Britain at WTW. “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.”

Mercereau additionally stated that consumers have needed to regulate to a extra cautious M&A setting, however deal discussions have continued amidst the uncertainty. As disruptive developments are anticipated to persist into the second half of 2023, potential consumers will strategy offers with elevated scrutiny as they search strategic priorities, market enlargement, and functionality enhancement.

APAC outperforms

The efficiency of M&A offers within the first half of 2023 would have been even worse if not for the Asia-Pacific (APAC) area, the place consumers proceed to outperform the remainder of the world, the report discovered. APAC acquirers surpassed their regional index by +10.9 pp, though the area nonetheless skilled a 25% drop in deal quantity in comparison with the first half of 2022.

On the opposite hand, North American acquirers underperformed their index by -5.9 pp, whereas European dealmakers underperformed their regional index by -8.3 pp.

Additional findings from the WTW information embody a decline in mega offers, with solely three closing within the first half of 2023 in comparison with 12 offers in the identical interval of the earlier yr. The second quarter of 2023 noticed North American acquirer efficiency at -10.3 pp, the second-worst on document, whereas European acquirer efficiency over the past three months reached a document low of -10.8 pp.

Intra-regional offers confirmed an rising development for 3 consecutive quarters in comparison with cross-regional offers. Similarly, intra-sector offers skilled a major bounce from 57% within the first quarter of 2023 to 67% within the newest quarter, indicating a transparent desire for offers nearer to residence.

“When inflation stabilizes and credit markets reopen, we expect deal appetite to increase considerably fuelled by pent-up demand with digital transformation, portfolio rebalancing and ESG issues continuing to be key drivers,” Mercereau stated. “Larger deals will remain tough to pull off due to increasing antitrust and regulatory pushback. Instead, companies are more likely to pursue small to midsize deals, which are easier to complete than megadeals and lower risk in today’s difficult financing environment. But in the race to acquire – whatever the size of deal – due diligence that is faster, deeper and better focused, combined with a plan for successful integration, will prove even more critical in a volatile market.”

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