December 26, 2022

The mergers and acquisitions market is still defined as “slow” and “uncertain” as we get closer to 2023, and those tendencies are probably going to persist into the new year.

The 2023 deal forecast may not be as gloomy as some predict despite this outlook. M&A activity hit unprecedented highs in 2021, and it’s difficult to keep breaking records year after year. Therefore, the M&A market in 2023—even though slower than in 2022—could resume its previous pace.

Market Reaches Historic Lows 2021

The volume of merger and acquisition deals, which includes a wide range of transaction types such as minority stake transactions, private equity deals, and venture capital financing rounds, significantly decreased in 2022, and the third-quarter data paints a dismal picture for the fourth and subsequent quarters of 2023. The volume of worldwide M&A transactions in Q3 2022 ($722 billion) was third-lowest since 2017. Only the first and second quarters of 2020, with deal volumes of $704 billion and $444 billion, respectively.

On the other hand, despite the apparent decline in activity from the previous year, data on yearly global M&A deal volumes indicate that 2022’s figures are more akin to those from 2017 and 2020.

At $3.1 trillion as of October 28, this year’s total M&A deal volume was around 11% below that of 2017 and 2020. However, 2022 might close the gap given the customary effort to complete agreements before the end of the year. The total annual deal volume in 2022 would surpass that of 2017 and 2020, even if the fourth quarter is as slow as the fourth quarter of 2018 (which had the lowest volume of any fourth quarter since 2017).

North America is still leading the world in deal volume.

The majority of global deal volume in 2022 has been made up of M&A transactions involving North American targets, totaling $1.4 trillion, or 47% of the total deal volume worldwide.

The Middle East and Africa region stands out among the other regions because its present deal count is the closest to its 2021 number and because its deal count for 2022 is currently the second highest since 2017 (only 2021’s count was higher). Additionally, the Middle East and Africa region is now only 6% below its 2017-2020 average annual transaction volume, whereas other regions are more than 20% behind.

The Middle East and Africa region may experience more activity in 2023 compared to the region’s historical yearly volumes, even if transactions for North American targets will likely continue to make up the majority of deal volumes.

Software Continues to Rule Supreme

Software remained the top industry in the M&A globe for the tenth straight quarter in Q3 2022, despite a sharp decline in deal volume from Q2 to Q3. The number of M&A transactions involving targets in the software sector peaked in Q2 2022 ($178 billion), before falling 49% to $91.4 billion in Q3. Software may no longer hold the top rank in 2023 due to the tremendous headwinds the tech sector is experiencing, including hiring freezes, layoffs, geographic, and political issues. This would represent a significant shift in the M&A market as a whole.

The amount of deals in all main target sectors—software, real estate, REITS, commercial services, and internet—significantly decreased from Q2 to Q3. However, these industries’ total year-to-date deal volume has already eclipsed their total yearly deal volume from 2017 to 2020.

Despite the fact that the combined M&A performance of the top five industries this year is just slightly behind that of 2021, 2023 might see a different top target industry and persistently lower deal volumes.

Continued Fears of the Recession

The stock market continues to experience significant volatility, and there is continued discussion about whether the US can avert a recession or is still moving in that direction. Storm clouds are gathering, including an increase in distressed debt and “zombie bonds,” as well as a lack of clarity in the Federal Reserve’s approach to addressing inflation.

However, some market participants are more upbeat about M&A. M&A activity is expected to go up in 2019, according to some investment bankers, and in 2023, according to certain private equity advisers, there will be a surge in deals.

The M&A prediction for the following year differs according to the industry sector or geographic area. For instance, despite the recent reductions in fintech valuations, some members of the business forecast that there will be more mergers and mega transactions, and other investment bankers think the energy sector is growing and will continue to grow. Others, meanwhile, are getting ready for additional downturns.

Overall, predictions for M&A activity in 2023 range widely, but it appears conceivable that deal activity in 2024 will be comparable to the average M&A activity prior to 2021.

Source: news.bloomberglaw.com
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.