M&A tends to slow during times of uncertainty or market volatility—but that Global Pandemic can be precisely the time when valuations become more attractive and opportunity knocks. Based on our experience, recent deals activity. As well as insight into our client’s current deals, we are optimistic that exciting M&A opportunities lie ahead in 2023. While overall deal volumes in 2022 were below the record-breaking 65,000 deals in 2021, they remained 9% above pre-pandemic levels. The current market conditions suggest that we are in a sweet spot for M&A if companies have well-thought-out strategies and the financial wherewithal (and in some cases the courage) to make transformational deals—deals. That will shape their businesses and contribute to their longer-term success.
In early 2023 the short-term economic outlook remains clouded by global recession fears and rising interest rates as central bankers try to tame record inflation in many regions. When combined with edgy investors still digesting 2022’s steep decline in global stock market valuations. With the war in Ukraine, other geopolitical tensions, and supply chain disruptions. And tightening regulatory scrutiny, it’s no wonder executives have been pushed back on their heels.
Paradoxically, deals done during a downturn are often the most successful. These Global Pandemic challenging conditions create opportunities for buyers to achieve better returns and even outsize growth. Right now, thanks to a reset in valuations, lessened competition for deals, and new assets coming to market—including from distressed situations. We believe that many C-suites and boards should embrace M&A as part of their strategy. Indeed, some have already begun to open their wallets to capitalize on these opportunities and potentially set the foundation to leapfrog competitors.
A survey illustrates the lure of M&A in challenging times. While 73% of corporate leaders are pessimistic about Global Pandemic economic growth. 60% told us that they are not planning to delay deals in 2023 to mitigate potential economic challenges and volatility. Along with the need to grow, we believe that CEOs continue to eye M&A to accelerate the digital and environmental, social, and governance (ESG) transformation of their businesses.
Technology has been the most active sector for dealmaking over the past several years. Yet the thirst for digital assets and capabilities remains largely unquenched. As fierce competition and high valuation multiples over the past few years have stymied the efforts of many companies wanting to make acquisitions. Beyond boosting tech capabilities and the need to invest in the energy transition. Companies are seeking to reposition themselves against competitors and a rapidly changing market, fill pipelines, reorient to new markets, and more broadly reinvent themselves.
In our 2022 mid-year update, we set out some ideas for how dealmakers can successfully address stakeholder concerns. And win trust to get deals done in the current environment. They included building the case for M&A now. Focusing on the long term, expanding due diligence, and capitalizing on the value reset. While some boards’ first instinct when discussing M&A opportunities may be one of hesitation. As macroeconomic risk and recession fears weigh on CEOs’ minds. They need to be aware of how strategic M&A can be a strong lever for sustained growth and transformation.
Nearly 40% of CEOs don’t think their companies will be economically viable a decade from now if they don’t transform. This underscores the need to reinvent businesses for the future while also dealing with a multitude of near-term challenges. If CEOs don’t react, they could miss attractive opportunities and potentially open the door to shareholder activism. A trend that has been on the rise.
As such, the time to act is now—, particularly for corporate players. However, it’s hard to predict how long acquirers will have to make the bold moves. That could change the game in their sector and deliver sustained outcomes. The current market trends are giving rise to a series of headwinds but at the same time creating a dynamic environment for M&A plays.
