Dealmaking in the global M&A market is expected to remain active in 2023 despite ongoing uncertainty and major headwinds, with recession fears triggering a ‘lipstick effect’ as larger deals fall out of favour, according to WTW.
Recent research by the multinational insurance advisor company, showed buyers outperforming the wider market as recently as the third quarter of 2022, based on share price performance of completed deals.
However, compared to record pace set last year, deal volume has slowed significantly, WTW noted.
Multiple factors like geopolitical turmoil, soaring inflation, rising interest rates and fears of a global recession have weighed on M&A in 2022, and will continue into 2023.
Such a challenging economic backdrop, WTW highlighted, makes it harder for buyers, particularly those venturing beyond their own borders, to confidently predict the profitability of potential targets.
Jana Mercereau, Head of Corporate M&A Consulting, Great Britain at WTW, said: “An unprecedented number of disruptive forces have created headwinds for dealmakers, but they are also generating opportunities.
“The fundamentals that drive dealmaking are still in place and, with valuations moderating after the historic levels reached in 2021, strategic and financial buyers alike will take advantage of better-priced opportunities for growth.”
Mercereau shared her top five M&A trends for 2023, which include the return of the’ lipstick effect’, with buyers focusing on smaller deals; and opportunities in distressed M&A, as buyers will potentially be able to expand product lines, services or supply chains at a reduced rate.
Next year there will also be a wave of technology acquisitions, mainly in the AI and machine learning markets; as well as geopolitical impact, which includes a shift to more selective ‘friend-shoring’ transactions, according to Mercereau.
Environmental, social and governance issues will also be in the spotlight as businesses will face mounting scrutiny and pressure for transparency on climate risk, social justice, sustainability and corporate governance.
She said: “As we move into 2023, economic uncertainty will continue to define and challenge M&A activity, but there will also be opportunities. The same volatility will present its own impetus for dealmaking, as strategic buyers seek to capitalise on cut-price deals in order to combat current market challenges and realise transformational growth.”