Recent data from WTW’s Quarterly Deal Performance Monitor (QDPM) indicates a downturn in global mergers and acquisitions (M&A) activity in the final quarter of 2023, with buyers facing challenges in adding value.
The study reveals that M&A deal performance hit an all-time low in Q4 2023, with companies completing deals underperforming the wider market by -13.6 percentage points for acquisitions valued over $100 million.
In 2023, global deal volume experienced a 27% decline, with 619 completed transactions compared to 853 in the previous year. Large deals, valued over $1 billion, were down by 30%, continuing a trend that began in 2020.
The challenging economic environment, marked by persistent inflation, rising interest rates, and geopolitical instability, contributed to these setbacks.
Jana Mercereau, Head of Corporate M&A Consulting, Great Britain at WTW, acknowledged the tough conditions, attributing the challenges to geopolitical conflict, recession fears, rising interest rates, and the high cost of capital.
She anticipates considerable potential for disruption in 2024, with a packed election calendar and a complex regulatory landscape adding hurdles and scrutiny to deal completion timelines.
Despite the recent underperformance, the long-term trend over the past 15+ years shows that M&A deals have generally outperformed the market since the global financial crisis, recording a positive margin of +1.5 percentage points.
Looking ahead, Mercereau remains cautiously optimistic about a rebound in M&A activity in 2024. Factors such as stabilising inflation, the cost of financing, and a record level of dry powder waiting to be deployed suggest a potential revival.
However, she emphasises that successful bids will require a high degree of caution, a focus on ‘best-fit’ deals, and thorough due diligence.
Regional variations in M&A performance were notable, with North America and Europe experiencing declines in deal volumes, while the Asia-Pacific region outperformed its regional index, completing 155 deals in 2023.
As macroeconomic volatility and geopolitical conflict persist, dealmakers are expected to focus on smaller mid-market transactions that are easier to execute and less risky to finance.
Additionally, joint ventures, strategic alliances, and minority investments are anticipated to gain momentum in 2024 as companies seek to mitigate risks and unlock greater value from M&A, particularly with a renewed focus on technology as a source of growth.
