NEW YORK, July 6, 2023 — Global M&A suffered a record decline in the first half of 2023 as interest rate rises and economic uncertainty hit financing, according to research on completed deals from WTW’s Quarterly Deal Performance Monitor (QDPM)[1].
“Buyers have had to shift gears to adapt to a more cautious M&A environment, although deal conversations have continued throughout this period of uncertainty.”
David Dean | Managing Director, Southeast Region
Run in partnership with the M&A Research Centre at The Bayes Business School, the WTW data reveals activity for deals valued over $100 million slowed significantly around the world during the first half of 2023, with a total of 280 deals completed compared to 441 during the same period in 2022. This represents a 37% drop in volume and the lowest figure for the first half of a year since 2009.
The challenging macroeconomic conditions are acutely evident in the North American market, where volumes fell for an unprecedented sixth consecutive quarter from a near all-time high of 173 deals in the third quarter of 2021 to just 61 deals between April and June 2023.
In addition to the low number of M&A deals, acquirers that completed transactions in 2023 also underperformed the market by -2.1pp (percentage points). This represents a marked decline following the positive performance of +4.4pp in the second half of 2022. However, despite the continued volatility, global M&A still achieved an overall positive performance of +1.4pp for the last 12 months.
David Dean, Managing Director, Southeast Region, North America at WTW, said: “A perfect storm of higher inflation, interest rates, capital costs and greater regulatory scrutiny, combined with major geopolitical headwinds and a banking crisis, have triggered a steeper drop-off in M&A activity than anticipated by the market.
“Buyers have had to shift gears to adapt to a more cautious M&A environment, although deal conversations have continued throughout this period of uncertainty. With these disruptive trends expected to continue into the second half of 2023, potential buyers will be kicking the tires a bit harder as they seek deals to address strategic priorities, expand into new markets and fill capability gaps.”
The deal performance during the first six months of 2023 would have been substantially worse if not for the Asia-Pacific region, where buyers continue to outperform the rest of the world. APAC acquirers outperformed their regional index by +10.9pp. With 72 deals closed in H1 2023, the region still saw a 25% drop in volume compared to H1 2022 (96 deals).
In contrast to the APAC region, North American acquirers underperformed their index between January and June by -5.9pp, while dealmakers from Europe underperformed their regional index by -8.3pp.
The WTW data also shows:
Dean said: “When inflation stabilizes and credit markets re-open, we expect deal appetite to increase considerably fueled by pent-up demand with digital transformation, portfolio rebalancing and ESG issues continuing to be key drivers.
“Larger deals will remain tough to pull off due to increasing anti-trust and regulatory pushback. Instead, companies are more likely to pursue small to midsize deals, which are easier to complete than megadeals and lower risk in today’s difficult financing environment. To achieve performance objectives underwriting deal financials, organizations will need to execute integration plans more effectively and address known obstacles like culture differences with more intentionality. Nonetheless in the race to acquire - whatever the size of deal - due diligence that is faster, deeper and better focused, will prove even more critical in a volatile market.”
WTW’s M&A practice combines our expertise in risk and human capital to offer a full range of M&A services and solutions covering all stages of the M&A process. We have particular expertise in the areas of planning, due diligence, risk transfer and post transaction integration, areas that define the success of any transaction.
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