Global mergers and acquisitions (M&A) activity saw a sharp decline in 2023, with the overall transaction value falling below $3 trillion for the first time in ten years.
This sharp decrease dispels expectations that the 2022 slowdown was only a one-time exception and highlights the powerful influence of a convergence of unfavorable variables.
According to data gathered by the London Stock Exchange Group (LSEG), the total value of transactions that were concluded internationally this year was close to $2.9 trillion, which is a significant 17% decline from 2022.
According to LSEG, this was the first time since 2008–09 that the value of announced agreements has declined by more than 10% for two years in a row.
Analysts attribute this dramatic slump to a potent cocktail of headwinds, primarily the surge in interest rates implemented by central banks worldwide and the escalating geopolitical tensions on several fronts.
Higher borrowing costs significantly reduced the financial attractiveness of many potential acquisitions, while heightened uncertainty surrounding various international conflicts further dampened investor appetite for risk.
“2023 has been a very slow year, more subdued than we expected when you look at the volume of deals,” said Simona Maellare, global co-head of the alternative capital group at UBS.
According to a Financial Times report, Europe showed the sharpest drop, down 28% annually, while the Asia-Pacific region was 25% lower and the US 6%.
Dealmakers have had to contend with challenges on multiple fronts. Mergers and acquisitions had already been in decline following a pandemic-era surge in activity, with regulators taking a more muscular approach and the rapid increase in global interest rates cooling the private equity market.
A pair of mega US energy deals from ExxonMobil and Chevron, each worth over $50 billion, lifted transaction volumes in the final months of this year. The value of deals struck in the fourth quarter was 28% higher than the third quarter.
However, Israel’s war with Hamas, which started in October, stopped a more widespread dealmaking revival from taking off.
“The regulatory environment has been tricky through the year,” said Mark Sorrell, co-head of global M&A at Goldman Sachs. “As sentiment was improving, you had the Middle East happen.”
Deals from financial sponsors declined 30% over the past year to $562 billion. Advisers said private equity groups had difficulty agreeing to valuations on assets. Brookfield’s shelved plans to sell the holiday resort group Center Parcs for more than £4 billion exemplified the difficulty of finding investors willing to pay up at a time of higher interest rates and inflation.
Private equity groups are expected to come under more pressure to strike deals next year after a prolonged slowdown in activity, dealmakers said.
This year “the successful exits were by the most courageous sellers with the best assets, and every process was more structured and complex”, said Carsten Woehrn, JPMorgan’s co-head of Europe, Mideast, and Africa M&A, and global co-head of the bank’s strategic investor group.
“For next year what’s clear is that there is both a willingness and a need to do deals by sponsors,” he said.
A more stringent attitude by competition authorities to enforcement has also deterred companies from launching bids for rivals. Microsoft’s $75 billion deal for gaming company Activision Blizzard survived challenges to close after 21 months of uncertainty, but Adobe’s $20 billion takeover of software group Figma was abandoned after EU and UK watchdogs launched probes.
Advisers concede that activity may arrive in the second half of 2024 rather than earlier in the new year.
Global investment banking fees were hurt by the slowdown, dropping 8% compared with last year to $105 billion. Fees from M&A fell most sharply, down 26% to $29 billion, the lowest level since 2016.
Goldman Sachs held the top spot in M&A advisory work, driven by its lead position in the US. Morgan Stanley and JPMorgan.
