Bold moves in global M&A might appear in 2023 — a year full of uncertainties, said Bain & Company recently when releasing its 5th annual Global Mergers & Acquisitions Report.
While M&A value dropped dramatically in 2022, a loss of 36% in deal value, Bain’s report confirms that deal activity continues to be a central corporate strategy for growth and profitability.
The report points to a survey of nearly 300 M&A executives, conducted by Bain in October 2022, who shared that they anticipate closing a similar number of deals if not more this year, the firm noted.
Bain’s research shows that strategic deal value declined more quickly than strategic deal volume while median strategic deal multiples fell to a 10-year low of 11.9x in 2022, off an all-time high in 2021.
The decline in deal multiples, coupled with a mid-year pause of mega-deals, explains the relatively large drop in deal volume versus activity, Bain observed.
The largest drops came among deals for Technology and Healthcare & Life Sciences assets, the firm pointed out.
The good news amid recent pessimism is that recent history of economic downturns supports confidence in making bold moves in global M&A, Bain said.
Assets are cheaper than they have been in years, and opportunities exist to strengthen core business or create strategic options via scope deals, the firm added.
Bain analysed M&A activity of nearly 2,900 companies during the 2008-2009 downturn—and found those who were active in M&A outperformed those that sat on the sideline.
This can be measured in the superior shareholder return of M&A active companies, the firm said.
“After five months of pre-pandemic levels of dealmaking, the market shifted in June 2022 and caused many to pause M&A,” said Les Baird, head of Bain’s Global M&A and Divestitures practice. “Based on what we know from past economic down cycles, we anticipate ample opportunity in 2023 for well-prepared acquirers to make bold, strategic moves.”
In addition, in the face of uncertainty, proactive, deeper due diligence can deliver a competitive advantage in the speed and quality of deals done, Baird added.
Five M&A themes to watch
According to the report, Bain has identified five M&A themes to watch this year.
- cash-rich companies making strategic, bold moves in global M&A
- the continued prevalence of small to midsize deals
- a balance of scale and scope deals
- further pressure on valuations
- companies retooling their portfolios through divestitures and separations
ESG plays drive breakthrough capabilities for diversified industrials
While ESG remains a buzz, Bain observes an increasing number of ESG-driven acquisitions among industrial players looking to accelerate broader environmental and social objectives.
Though it's still difficult to quantify M&A activity under ESG parameters, Bain estimates that one in 10 deals in diversified industrials now has an ESG component.
Bain’s report identifies two main types of industrial ESG related deals.
First, industrials are acquiring adjacent businesses to gain quick access to greener and more favourable market segments.
Second, companies are turning to acquisitions to help improve their production or manufacturing capabilities in pursuit of their own ESG objectives. These trends are likely to continue in 2023.