When it comes to global M&A trends in 2023, WTW said that deals will be smaller while pace will be slower.
As we move into 2023, economic uncertainty will continue to define and challenge M&A activity, but there will also be opportunities, said Massimo Borghello, Head of Human Capital M&A Consulting, Asia Pacific at WTW.
“In Asia Pacific, digital transformation, energy transition and the process of adapting to geopolitical impacts will continue to provide impetus for dealmaking, as strategic buyers seek to realise transformational growth,” Borghello noted.
The five global M&A trends in 2023
According to Borghello, the top five global M&A trends in 2023 are as follows.
Return of the “lipstick effect”
Buyers will increasingly focus on smaller deals, as recessionary fears trigger a "lipstick effect", which means a rise in spending on smaller, more affordable – rather than big ticket, more expensive goods -- as a result of a economic downtown.
For the first time in over three years, no mega deals (valued over $10 billion) were closed during Q3 2022 and large deals (valued over $1 billion) were significantly down compared to the same period in 2021 (49 vs 67), according to WTW’s Quarterly Deal Performance Monitor, run in partnership with the M&A Research Centre at Bayes Business School.
Opportunities in distressed M&A
The difficult operating environment will drive an increase in companies jettisoning non-core assets in the pursuit of long-term value creation.
Some deals will be strategic — energy firms continuing to divest carbon intensive assets — while the ongoing economic uncertainty will force other companies to sell assets — the retail and leisure sectors often having a higher operating leverage. This can create opportunities for buyers to expand product lines, services or supply chains at a reduced rate.
Technology M&A: From defence to offence
The need for speed in digital transformation across all industries, accelerated by an era of volatility, will keep dealmaking front and centre, with a wave of acquisitions in the AI and machine learning markets expected in 2023.
Whether adopting new technologies and talent, or reaching new markets, M&A continues to be the fastest way for businesses to transform in order to remain relevant and resilient in today’s fast-changing world.
Hit by multiple supply chain disruptions during the pandemic that are set to stay in 2023, companies will look to M&A transactions to boost their operational resilience.
Cross-border M&A activity has decreased in 2022, reflecting economic and geopolitical upheaval on the world stage.
In Asia Pacific, the current observed trends are expected to continue, with increased volume in Japan outbound transactions and a general pivot to Southeast Asia. China dealmaking will increasingly focus on domestic consolidation, ahead of outbound ambitions.
Spotlight on ESG
ESG issues in dealmaking will remain in the spotlight in 2023.
In Asia Pacific, deal activity in renewable energy has considerable momentum, which will flow into next year.
With increasing numbers of investors seeing ESG as a fundamental driver of financial success, businesses will face mounting scrutiny and pressure for transparency on climate risk, social justice, sustainability and corporate governance. ‘Green’ due diligence is, without a doubt, on the up.