The data reveals a downturn in M&A activity during the final quarter of 2023, with companies grappling with obstacles in value addition.
The study discloses that M&A deal performance reached an unprecedented low in Q4 2023, with companies completing acquisitions over $100 million underperforming the broader market by -13.6 percentage points. The global deal volume experienced a substantial 27% decline in 2023, with 619 completed transactions compared to the 853 recorded in the previous year. Deals exceeding $1 billion were down by 30%, continuing a trend observed since 2020.
According to the data, regional disparities in M&A performance were noticeable, with North America and Europe experiencing declines in deal volumes, while the Asia-Pacific region outperformed its regional index, completing 155 deals in 2023. In light of ongoing macroeconomic volatility and geopolitical conflicts, dealmakers are expected to shift their focus towards smaller mid-market transactions that are easier to execute and less risky to finance.
Additionally, joint ventures, strategic alliances, and minority investments are anticipated to gain momentum in 2024 as companies seek to mitigate risks and unlock greater value from M&A, particularly with a renewed focus on technology as a source of growth.
The challenging economic landscape, characterised by persistent inflation, escalating interest rates, and geopolitical instability, played a pivotal role in these setbacks.
Jana Mercereau, Head of Corporate M&A Consulting for Great Britain at WTW, said: “It has been a tough 12 months. M&A deals have been weighed down by geopolitical conflict, recession fears, rising interest rates and the high cost of capital. Potential for disruption in 2024 remains considerable, exacerbated by a packed election calendar and a complex regulatory landscape raising more hurdles, scrutiny and longer timetables to complete deals.”
She anticipates a potential disruption in 2024, citing a crowded election calendar and a complex regulatory environment as additional hurdles to deal completion timelines. “Despite these headwinds, inflation and the cost of financing seem to be stabilising and the record level of dry powder waiting to be deployed suggest a rebound of activity in 2024. With transactions facing greater scrutiny, however, successful bids will depend more than ever on exercising a high-degree of caution, a focus on ‘best-fit’ deals and thorough due diligence.”
According to Claire Trachet, CEO/Founder of Trachet, the rise of the mid-sized merger will form the backbone of the UK’s M&A recovery and industry experts are optimistic about a resurgence in 2024, fueled by projections of a reduction in interest rates following consecutive record declines in the UK’s inflation rate.
She says: “Despite a lacklustre 2023, defined by the shrinking of available capital flows and the collapse of headline deals, including Adobe-Figma, founders, investors and analysts alike ought to remain optimistic for 2024, the growth of deals involving UK companies hit their highest quarterly total in the final three months of last year, whilst private equity firms filled the gap left by traditional institutional funding due, in part, to an expected cut to the base rate of interest following record breaking inflation figures.
“In anticipation for the year ahead, founders should consider getting their shopfront ready as investors from across the globe look towards undervalued UK-based businesses. With over half a million startups launched in the first half of 2023 alone, it’s become increasingly imperative for founders to determine their priorities and assess the principles of their business.
Trachet adds: “Founders must also prepare themselves for the inevitable personal toll of pursuing a worthwhile deal, with the average M&A agreement taking six months to a year to complete, burnout can be commonplace and minor setbacks are often magnified due to overwhelming fatigue. It’s therefore essential for founders to pursue expert advice that merges both the business and the personal.”
For more details on the WTW study, visit here:
Author: Joanna England