The global M&A market remained resilient in 2022 despite unprecedented uncertainty, according to a new report from global broker WTW. The report found buyers outperforming the wider market as recently as the third quarter, based on share price performance and completed deals.
However, deal volume slowed significantly in 2022 compared to last year’s record pace. Multiple factors have impacted M&A this year, including geopolitical turmoil, skyrocketing inflation, climbing interest rates and worries about a global recession. These issues are expected to continue into next year, making it more difficult for buyers to predict the profitability of potential targets, WTW said.
“An unprecedented number of disruptive forces have created headwinds for dealmakers, but they are also generating opportunities,” said Massimo Borghello, head of human capital M&A consulting, Asia-Pacific at WTW. “The fundamentals that drive dealmaking are still in place and, with valuations moderating after the historic levels reached in 2021, strategic and financial buyers alike will take advantage of better-priced opportunities for growth.”
Borghello highlighted the top trends for next year:
Return of the “lipstick effect”: Buyers will increasingly focus on smaller deals as fears of a recession trigger a “lipstick effect” – when economic downturns spur a rise in spending on smaller, more affordable goods rather than big-ticket items.
In Q3 2022, no mega deals (valued at more than $10 billion) were closed – the first time that has happened in more than three years. Large deals (valued at more than $1 billion) were also significantly lower compared to the same period in 2021, at 49 compared to 67.
Opportunities in distressed M&A: the challenging operating environment will spur an increase in companies shedding non-core assets. Some deals will be strategic, such as energy companies continuing to divest carbon-intensive assets. In other cases, economic uncertainty will force companies to sell assets. That can create opportunities for buyers to expand product lines, services or supply chains at a reduced rate, WTW said.
Technology M&A: The necessity of speedy digital transformation in all industries is expected to spur a wave of acquisitions in the AI and machine leading markets in 2023.
Geopolitical impact: The supply chain disruptions sparked by the COVID-19 pandemic will likely continue in 2023, driving companies to look to M&A to boost their operational resilience, WTW said. Cross-border M&A activity decreased in 2022, stifled by continued global economic and geopolitical upheaval.
In Asia-Pacific, current trends are expected to continue, with increased volumes of outbound transactions in Japan and a general pivot to Southeast Asia, WTW said. Dealmaking in China will focus more on domestic consolidation, as opposed to outbound transactions.
ESG issues: Environmental, social and governance issues in dealmaking will continue to be an important factor next year. In Asia-Pacific, there is already considerable momentum in deal activity related to renewable energy, a trend expected to continue in 2023. With more and more investors considering ESG a vital driver of financial success, businesses will face mounting pressure for transparency on climate risk, sustainability, social justice and corporate governance, WTW said.
“As we move into 2023, economic uncertainty will continue to define and challenge M&A activity, but there will also be opportunities,” Borghello said. “In Asia-Pacific, digital transformation, energy transition and the process of adapting to geopolitical impacts will continue to provide impetus for dealmaking as strategic buyers seek to realise transformational growth.”
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