M&A deals tumble in first half

Global merger and acquisition activity experienced a significant decline in the first half of 2023 due to rising interest rates and economic uncertainty, according to research conducted by WTW’s Quarterly Deal Performance Monitor (QDPM) in collaboration with M&A Research Center at The Bayes Business School.

The report revealed that the number of completed M&A deals worth more than $100 million fell globally in the first half of 2023, with a total of 280 deals compared to 441 deals in the same period in 2022. This represents a 37% decrease in volume, marking the lowest figure in the first half of the year since 2009.

Challenging macroeconomic conditions are particularly evident in the North American market, which has experienced a continuous decline in deal volumes for six consecutive quarters, WTW reports. From an almost all-time high of 173 deals in the third quarter of 2021, the number of deals fell to just 61 between April and June 2023.

In addition to the decrease in the number of M&A deals, the performance of acquirers that completed transactions in 2023 also underperformed the market by -2.1 percentage points (pp). This decrease follows a positive performance of +4.4 pp in the second half of 2022. However, despite the ongoing volatility, global M&A still achieved an overall positive performance of +1.4 pp. in the last 12 months.

“A perfect storm”

“A perfect storm of higher inflation, interest rates, capital costs and greater regulatory scrutiny, coupled with major geopolitical headwinds and a banking crisis, has triggered a steeper drop-off in M&A activity than the market expected,” said Jana Mercereau (pictured). above), head of corporate M&A consulting for Great Britain at WTW. “Buyers need to shift gears to adapt to a more cautious M&A environment, even as deal conversations continue during this period of uncertainty. With these disruptive trends expected to continue through the second half of 2023, potential buyers will be kicking the tires harder as they seek deals to address strategic priorities, expand into new markets and fill lack of capability.

Mercereau also said buyers are having to adjust to a more cautious M&A environment, but deal talks are continuing amid uncertainty. As disruptive trends are expected to continue in the second half of 2023, potential buyers will approach deals with increased scrutiny as they seek strategic priorities, market expansion, and capability enhancement.

APAC outperformed

The performance of M&A deals in the first half of 2023 would have been worse if not for the Asia-Pacific (APAC) region, where buyers continue to outpace the rest of the world, the report found. APAC acquirers outperformed their regional index by +10.9 pp, although the region still experienced a 25% decrease in deal volume compared to the first half of 2022.

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

Additional findings from WTW data include a decline in mega deals, with only three closings in the first half of 2023 compared to 12 deals in the same period last year. The second quarter of 2023 saw North American acquirer performance at -10.3 pp, the second worst on record, while European acquirer performance in the last three months reached a record low of -10.8 pp.

Intra-regional deals showed an upward trend for three consecutive quarters compared to cross-regional deals. Similarly, intra-sector deals experienced a significant jump from 57% in the first quarter of 2023 to 67% in the most recent quarter, indicating a clear preference for deals closer to home.

“If inflation stabilizes and credit markets reopen, we expect deal appetite to increase significantly due to pent-up demand with digital transformation, portfolio rebalancing and issues of ESG continues to be a key driver,” said Mercereau. “Larger deals will remain difficult to obtain due to increasing antitrust and regulatory pressures. Instead, companies are more likely to pursue small to medium-sized deals, which are easier to complete than megadeals and have shorter risk in today’s difficult financial environment. But in the race to acquire – regardless of the size of the deal – due diligence that is faster, deeper and better focused, combined with a plan for of successful integration, will prove more critical in a volatile market.

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