Global M&A activity will likely rise in the second half of 2023 as investors and executives look to balance short-term risks with their long-term business transformation strategies, said PwC recently when releasing its PwC’s 2023 Global M&A Industry Trends Outlook.
While global M&A activity remains clouded by macroeconomic volatility including recession fears, rising interest rates, a steep decline in equity valuations, geopolitical tensions including the war in Ukraine, and supply chain disruptions, 60% of global CEOs say they are nevertheless not planning to delay deals in 2023, according to PwC’s 26th Annual Global CEO Survey.
The global M&A market faced a challenging 2022 with M&A volumes and values declining from record-breaking highs (65,000 deals) in 2021 – respectively by 17% and 37% – although remaining above 2020 and healthy pre-pandemic levels, PwC said.
In the second half of 2022, deal volumes and values declined by a greater portion – by 25% and 51%, respectively – compared to the year prior, the firm added.
However, the impact of various macroeconomic and geopolitical factors has not impacted global M&A activity uniformly, according to PwC.
India, for example, was an outlier in 2022, seeing activity rise by 16% and volume by 35% – to an all-time high – compared to double-digit declines in the US, China and many other territories, PwC pointed out.
The outlook finds that M&A – and particularly portfolio optimisation – continues to represent a strategic opportunity for market players — irrespective of challenging macroeconomic and geopolitical factors.
In addition, global M&A remains a tool to help CEOs reposition their businesses, bolster growth and achieve sustained outcomes over the longer-term, PwC noted.
Now is not the time to fall out of love with M&A, PwC said.
M&A tends to slow during times of uncertainty or market volatility, but those can be precisely the times when valuations become more attractive and opportunity knocks, the firm added.
A reset in valuations, lessened competition for deals, and new assets coming to market — including from distressed situations — present real opportunities for buyers to achieve better returns and even outsized growth, PwC observed.
Global M&A Outlook for 2023
According to PwC, macroeconomic volatility and geopolitical conflict are not having a uniform impact across industries. The following industry dynamics will create opportunities for M&A in 2023, said PwC.
Technology, Media and Telecommunications (TMT): Digitalisation for many businesses remains a key focus. Software deals will continue to dominate the sector – as much as they did in 2022 – having accounted for two-thirds (71%) of tech deal activity and three-quarters (74%) of deal values. Other areas which will likely be hot spots of M&A activity in 2023 include telecoms, the metaverse and video games.
Industrial Manufacturing and Automotive (IM&A): Portfolio optimisation will drive divestitures and acquisitions, particularly those focused on sustainability and accelerating digital transformation.
Financial Services (FS): Disruption from platforms and FinTech is driving rapid technological changes across FS and will boost M&A as players seek to acquire digital capabilities.
Energy, Utilities and Resources (EU&R): Energy transition will remain a priority for investors and management teams, directing large volumes of capital to M&A and other capital project development.
Consumer markets: While challenges remain on the consumer front in 2023, portfolio reviews and a focus on transformational transactions will create M&A opportunities
Health industries: The need to innovate and transform businesses to achieve growth goals will drive M&A activity in 2023. Biotech, CRO/CDMO, MedTech, consumer-facing healthcare and digital health solutions are expected to attract strong investor interest.
Macroeconomic and geopolitical volatility will also impact market players differently, creating advantages for some, and challenges for others:
Corporates: Strong balance sheets will present an opportunity for corporates given tight financing conditions.
Private equity: PE will be looking at new deals and will be focused on creating value in their portfolio companies, which in turn will involve optimisation, build-ups, and divestitures.
Special Purposes Acquisition Companies (SPACs): While SPACs raised approximately $230bn in capital through IPOs since 2020, increasingly more are struggling to close deals, and many are likely to run out of time.
Credit Funds and Private Markets: Their lending will gain M&A share from banks and become key to providing much-needed liquidity, particularly in mid-market deals.
Venture Capital: VC may retreat from some riskier investments, but climate tech investing remains a potential bright spot with more than one-quarter of all VC funding now going to climate technologies, especially those focused on cutting emissions.
“There are plenty of reasons to be positive about M&A deal activity as we enter 2023,” said Malcolm Lloyd, Global Deals Leader, PwC Spain. “CEOs will have dealmaking firmly on their agendas as businesses continue to optimise their portfolios and consider how strategic M&A can help drive growth and their transformation journey.”