Global M&A hits 14-year low in H1, ‘disruptive trends’ threaten race to acquire

Global M&A activity took a sharp nosedive in the first half of 2023 amid a storm of soaring inflation, interest rates, capital costs and regulatory pressures, and geopolitical turmoil alongside a banking crisis. Market analysts at a leading brokerage are predicting a bumpy ride for buyers in the latter half of the year with these “disruptive trends” expected to continue.

M&A activity in H1 suffered a “record decline” of 37% to 280 deals, the lowest volume since 2009. An “unprecedented” six-quarter slide in North American deals from its nearly record-high 173 in Q3 2021 to a mere 61 between April and June 2023 added to the dismal performance, research on completed deals from WTW’s Quarterly Deal Performance Monitor (QDPM) indicated.

Mega deals valued over $100 million felt the pressure and “slowed significantly” around the world to a mere three H1 2023 completions, a sharp drop from the 12 in H1 2022.

Notably, the WTW data also revealed that buyers went on to underperform the market by -2.1pp, a significant downturn from the +4.4pp outperformance seen from buyers in H2 2022. North American and European dealmakers suffered the post-deal underperformance, slipping below the track of their regional indices by -5.9pp and -8.3pp, respectively.

Asia-Pacific buyers, where the deal count was down a milder 25% to 72 closed deals in H1 2023, managed to outperform their regional index by +10.9pp.

Asia Pacific buyers have, in fact, buoyed the global post-deal performance counts for eight successive quarters. Buyer performance during the first six months would have been “substantially worse” if not for the Asia Pacific region, analysts noted.

Despite the sombre picture, the market signalled a clear trend of buyers seeking deals closer to home with intra-regional and intra-sector deals seeing a marked increase. Intra-sector deals saw a big jump from 57% in the first quarter of 2023 to 67% in the latest quarter, compared to cross sector deals.

Jana Mercereau, head of corporate M&A consulting, Great Britain at WTW, highlighted the harsh market conditions, stating that “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.”

“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. 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,” Mercereau said.

Mercereau warned of increased due diligence as key for navigating through these volatile market conditions. She said: “Larger deals will remain tough to pull off due to increasing anti-trust 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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