Amidst economic headwinds and surging interest rates, global mergers and acquisitions (M&A) activity reached its lowest point in a decade in 2023, totaling a mere $3 trillion, as reported by recent Dealogic data. The decline, marked by an 18% drop, reflected a cautious approach from companies grappling with economic uncertainties. However, industry insiders, including bankers and legal experts, anticipate a robust rebound in M&A as conditions gradually improve.
Noteworthy factors contributing to the slump were the challenges posed by high interest rates, making acquisition financing more costly for private equity firms and entities with lower credit ratings. Additionally, economic volatility and uncertainty hindered negotiations between acquirers and sellers, leading to a stark decline in deal volumes.
Prominent figures in the financial sector, such as Paul J. Taubman, founder and CEO of PJT Partners, expressed surprise at the difficulty in advancing deals in 2023. Taubman anticipates an M&A resurgence, though the extent of its manifestation in 2024 versus setting the stage for 2025 remains uncertain.
In the United States, the world’s largest investment banking market, M&A volumes contracted by 8%, amounting to $1.42 trillion. Europe and the Asia Pacific experienced steeper declines, with volumes plummeting by 32% and 20%, respectively.
Globally, private equity-led buyout volumes witnessed a substantial 38% slump, totaling $433.6 billion. Avinash Mehrotra, co-head of M&A for the Americas at Goldman Sachs, noted the diminished role of private equity in deal activity over the past 12 months.
Despite the challenging landscape, certain blockbuster deals in the oil and gas sector buoyed overall deal volumes, exemplified by Exxon Mobil’s $60 billion bet on Pioneer Natural Resources and Chevron Corp’s $53 billion acquisition of Hess Corp.
Encouragingly, signs of a revival emerged towards the end of the year, with a 19% year-over-year increase in deal volumes in the fourth quarter, primarily fueled by energy-related transactions.
A myriad of challenges contributed to the lack of confidence in dealmaking, including a stringent antitrust environment, prolonged regulatory reviews for cross-border tie-ups, and the complexities of navigating elections worldwide.
While regulatory uncertainties loom, industry experts anticipate that corporate buyers are unlikely to halt strategic M&A planning. Shareholder activism, a historical driver of M&A, is on the rise, with a busier proxy season expected in 2024 compared to the previous year.
As 2024 approaches, M&A advisers express optimism about a healthier deal pipeline, citing increased confidence in C-suites and boardrooms, as well as heightened dialogue among companies regarding potential transactions.
In summary, the global M&A landscape, having weathered a challenging year, appears poised for a resurgence, with industry players cautiously optimistic about the prospects in the upcoming year.
