The first half of 2023 brought a mixed bag for M&A activity. Buyers eagerly invested in quality assets aligning with strategic priorities and promising long-term growth. Yet, potential sellers, confident in their businesses, hesitate to transact, anticipating future upside and near-term reservations. Macroeconomic volatility and differing views on valuations amid higher rates and recession fears prompt a cautious, wait-and-see stance among companies.
Industry dynamics vary widely in terms of deal volumes and outlooks. Areas like healthcare and technology have remained relatively resilient. However, consumer and industrial deals slowed notably as firms took stock of softening end-market demand. Geographically, regulatory and competitive scrutiny of large mergers, especially in Europe and China, have curtailed some previously expected consolidation. Still, cross-border activity accounts for over 40% of global M&A. This affirms most executives’ conviction that this dealmaking wave has years left to run even if the periodic volume dips of 2022-2023 persist for several more quarters.
Cautious Optimism for Late 2023, 2024
Despite a strong appetite for strategic M&A, deal value through Q3 2023 lagged nearly 30% behind the previous year’s activity. Ongoing macro uncertainty, higher debt costs with rising interest rates, and wide bid-ask spreads contributed to the subdued pace of transactions. These factors were prevalent in the first three quarters of the year.
However, several underlying factors suggest M&A markets may be poised for an uptick over the next 6-12 months. First, economic indicators have stabilized from mid-2022 lows, restoring some revenue visibility for companies across various sectors. Solid 2023 earnings bolstered managements’ confidence, supporting strategic growth plays—organic or inorganic—late in the year. Finally, mounting pressure on limited partners to deploy capital hints at private equity emerging as a catalyst after slower quarters.
Notably, the pipeline of announced deals has outpaced completed transactions for much of 2023. This indicates the foundation for an increase once markets become more constructive. Reports also show binding offers are taking longer to negotiate and close. So, deals entering due diligence today could drive improved volumes by mid-2024. Despite risks in inflation, supply chains, and energy shocks, the M&A landscape appears to improve gradually.
Spotlight Deals Provide More Confidence
While aggregate stats suggest modest recovery, 4Q2023 deals highlight enduring appetite for sector-defining combinations among consolidators and sponsors:
- The pending $18.8 billion take-private of Telecom Italia’s fixed-line broadband business – to be renamed NetCo, by KKR – has moved forward following months of complicated negotiations and marks one of Europe’s largest buyouts of the past decade. Learn more here.
- Broadcom’s acquisition of VMWare was a major move in the semiconductor industry, with Broadcom aiming to acquire VMWare for $61 billion. The deal, announced in May 2022, highlights Broadcom’s strategy to create a one-stop-shop for IT solutions, combining VMWare’s multi-cloud offerings with Broadcom’s diversified software portfolio.
- In the biotech sector, some acquisitions included BioNTech’s purchase of AexeRNA, a small mRNA startup, and AbbVie’s acquisition of Mitokinin for $110 million, with an additional $545 million in potential milestone payments. These acquisitions reflect ongoing consolidation and strategic moves in the biotech industry, particularly in areas like gene editing and healthcare.
- The water sector also saw a trend in mergers and acquisitions, although overall, there was a 6% decline in water M&A deals compared to the previous year. This decline was attributed to high costs of capital, macroeconomic uncertainty, and geopolitical anxiety. The year’s deal flow showed a rise in take-private deals, an uptick in water construction M&A, and growth in water treatment segment deals.
These acquisitions demonstrate a continued trend of consolidation and strategic realignment across various industries, reflecting broader economic and technological shifts.
Spotlight Deals Provide More Confidence
As we take a broader perspective on M&A trends heading into 2024, we observe several noteworthy developments across regions and sectors, indicating resilience despite a general cooldown in dealmaking activity:
North America continues to be a dominant force in global M&A volumes, maintaining a substantial presence despite some shifts in dynamics. This is in part due to the resilience of domestic activity, which has been more consistent than cross-border deals. The region remains active with deals being completed, particularly in the tech and healthcare sectors.
M&A activity in the Asia-Pacific region, excluding Greater China, shows unexpected strength. Despite the challenges in China and Hong Kong, deals in Australasia and Southeast Asia have been robust, compensating for the slowdown in other parts of the region.
In Europe, there’s been a noticeable decrease in announced deal values by nearly 50% compared to the previous period. Despite these macroeconomic challenges, there is still a solid level of buyer interest, particularly in the UK.
Looking ahead to this year, there’s a general sense of optimism for a rebound in M&A activity. This positive outlook is supported by the anticipation of rate cuts starting in the spring of 2024, which could reinvigorate the M&A market.
While the timing of the next major wave of M&A activity remains uncertain due to ongoing challenges, the foundational elements for a resurgence in dealmaking appear to be in place.
The critical ingredients for M&A remain intact – the continued focus on technological innovation, diversification of deal structures, and the strategic pursuit of deals that promise long-term value and growth, transformative assets, abundant capital, consolidation imperatives, shareholder pressure, and management’s growth mandates. Though timing the next wave is tricky amid formidable headwinds, the foundation appears in place for aggregate dealmaking to regain momentum over this year after a muted 2023.
Global Telco Consult (GTC) is a trusted independent business messaging consultancy with deep domain knowledge in application-to-person (A2P) services. GTC provides tailor-made messaging strategies to enterprises, messaging service providers, operators and voice carriers. We have expertise in multiple messaging channels such as RCS, Viber, WhatsApp, Telegram and SMS for the wholesale and retail industry.
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