Global M&A witnessed a record decline in the first half of 2023 as interest rate rises and economic uncertainty hit financing.
Research on completed deals from global broking firm WTW’s Quarterly Deal Performance Monitor (QDPM) shows that activity for deals valued over $100 million slowed significantly across the globe during H123, with a total of 280 deals completed compared to 441 from the same period last year.
This decrease represents a 37% drop in volume. As a result, this is the lowest figure for the first half of a year since 2009.
At the same time, the challenging macroeconomic conditions are acutely evident in the North American market. Volumes fell for an unprecedented sixth consecutive quarter from a near all-time high of 173 deals in the third quarter of 2021 to just 61 deals between April and June 2023.
WTW also highlighted that acquirers that completed transactions in 2023 underperformed the market by-2.1pp (percentage points), representing a marked decline following the positive performance of +4.4pp in the second half of 2022.
Nevertheless, despite the continued volatility, global M&A still managed to achieved an overall positive performance of +1.4pp for the last 12 months.
Jana Mercereau, Head of Corporate M&A Consulting, Great Britain at WTW, said: “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. 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.”
In addition, the deal performance during the first six months of 2023 would have been substantially worse if not for the Asia-Pacific region, where buyers continue to outperform the rest of the world.
APAC acquirers outperformed their regional index by +10.9pp. With 72 deals closed in H1 2023, the region still saw a 25% drop in volume compared to H1 2022, which witnessed 96 deals.
Meanwhile, North American acquirers underperformed their index between January and June by -5.9pp, with dealmakers from Europe also underperforming their regional index by -8.3pp.
Another key figure to note is that the performance of acquirers in North America for the second quarter of 2023 was -10.3pp, making it the second worst on record, exceeded only by the same quarter in 2020, at the height of the COVID-19 pandemic.
Acquirer performance in Europe during the last three months is also the worst on record at -10.8pp.
Mercereau added: “When inflation stabilises and credit markets re-open, 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.
“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.”
