In 2023, global mergers and acquisitions (M&A) experienced a significant downturn, reaching its lowest point in ten years, with total volumes plummeting by 18% to approximately $3 trillion. The latest data from Dealogic reveals a stark contrast to 2013, when deal volumes were at $2.8 trillion—a confluence of factors, including high interest rates and economic uncertainties, dampened companies’ confidence in dealmaking. However, industry experts anticipate a rebound in M&A activities as conditions improve.
Factors Behind the Decline
1. Interest Rates and Economic Slowdown
High-interest rates posed challenges for private equity firms and companies with lower credit ratings, making acquisition financing more expensive. Simultaneously, economic uncertainties and market volatility hindered acquirers and sellers from reaching agreements on deal prices.
2. Private Equity Slowdown
Global private equity-led buyout volumes plummeted by 38% to $433.6 billion, with financial sponsors scaling back on leveraged buyouts (LBOs) and selling fewer companies. Private equity’s share in deal activity, once around 30%, notably diminished.
3. Regional Disparities
While the United States, the world’s largest investment banking market, experienced an 8% decline in M&A volumes ($1.42 trillion), Europe and the Asia Pacific saw sharper declines of 32% and 20%, respectively.
4. Blockbuster Deals in the Energy Sector
Despite the decline, the oil and gas industry witnessed a string of blockbuster deals, such as Exxon Mobil’s $60 billion investment in Pioneer Natural Resources and Chevron Corp’s $53 billion acquisition of Hess Corp.
Signs of Recovery:
1. Fourth Quarter Upsurge
The fourth quarter of 2023 saw a 19% year-over-year increase in deal volumes, primarily driven by energy deals. Industry observers suggest this may indicate a broader recovery trend.
2. Changing Corporate Mindset
Boards are acknowledging the compressed valuations of companies as the new norm, making it easier for buyer and seller expectations to converge. This shift in mindset may contribute to increased dealmaking in the near term.
Challenges Affecting Confidence
1. Antitrust Environment
A challenging antitrust environment and lengthy regulatory reviews have curbed boardroom confidence and strategic appetite for transformative mergers. Deals exceeding $5 billion and $10 billion faced notable declines.
2. Cross-Border Complications
Due to stricter and lengthier regulatory reviews in different countries, cross-border deals faced increased complexity. Global cross-border deal volumes amounted to about $844 billion, down 3% from the previous year.
Outlook for 2024
1. Potential Headwinds
Factors such as upcoming elections and regulatory uncertainties in different parts of the world, including the U.S. and India, may challenge M&A activity levels in 2024.
2. Shareholder Activism
Shareholder activism, a historical driver of M&A, is on the rise. The proxy season heading into 2024 appears busier than the previous year, indicating potential momentum in dealmaking.
3. Robust Pipeline
Despite the challenges, M&A advisers note a healthier pipeline of deals entering 2024 compared to last year. Confidence levels in C-suites and boardrooms are rising, signaling a potential acceleration in market activity.
Don’t be a silent ninja! Let us know your thoughts in the comment section below.
