The first half of this year has presented significant challenges for dealmakers – and the future of M&A activity may not only consist of large eye-catching megadeals, which have declined since their peak in 2021. Instead, we anticipate a healthier level of mid-market deals as companies pursue their strategic growth agendas. Various factors, from digitalisation to decarbonisation to value creation, are creating dynamic market conditions that will likely lead to transformation opportunities and a more vibrant M&A market in the coming months.
These smaller deals have the potential to drive transformation and growth. While cash-rich corporations are well-positioned for larger moves, we expect mid-market transactions to dominate the market as CEOs use strategic acquisitions and selective divestitures to position their portfolios for the future.
Creating value has always been important in deals, but now there is a greater emphasis on finding additional ways to unlock a transaction's full potential. This often involves identifying transformative opportunities that can have a significant impact. Strategies like optimising portfolios, embracing digitalisation, and making changes to business models are getting more attention. And it's worth looking for less-explored levers, including energy efficiency, green tax credits, and sustainable financing, for their potential contributions.
M&A volumes above pre-pandemic levels
Deal volumes and values, H1'19-H1'23
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Global M&A activity experienced declines in volumes and values during the first half of 2023. Compared to the second half of 2022, volumes decreased by 8% and values by 15%. When compared to the first half of 2022, the declines were more significant at 14% and 40%, respectively. M&A activity has varied across regions, presenting opportunities for investors exploring growth in alternative markets.
Important topics to watch
- Transformation and disruption
Tech and AI drive M&A opportunities, but AI talent scarcity challenges organisations. Climate-conscious strategies disrupt sectors like renewable energy and mining. CEOs need bold M&A strategies for competitiveness. Cash-rich companies pursue transformative deals and lower valuations create public-to-private chances for private equity investors. Sellers should prioritise preparation. - Portfolio review and divestiture
Portfolio reviews will be a significant focus for companies and private equity firms, enabling them to identify strategic gaps for acquisitions and divest non-core assets. Factors such as a capital-constrained environment, the technology revolution, and geopolitical/regulatory dynamics will influence these decisions. In the current M&A market, mid-market deals are gaining prominence due to financing challenges and increased regulatory scrutiny faced by larger deals. - PE: portfolio optimisation and public to private deals
PE is adapting to macro challenges with portfolio reviews, bolt-on acquisitions, and investments in technology. Strategic platform acquisitions and alternative asset classes drive PE activity. Various financing structures, including private credit, support important deals. PE firms prioritise value creation and sustainability. Take-private deals offer flexibility and higher returns compared to public companies. - Restructuring is the trend
Restructuring activity is expected to continue in the second half of 2023 due to mounting financing pressures, including high debt costs, tight credit, and challenges in raising capital. Weak top-line growth and margin pressures are affecting sectors like retail, consumer discretionary, real estate, and industrials. Companies with private credit debt are proactively addressing issues, stimulating distressed M&A. Dealmakers should address refinancing risks and secure alternative capital sources early on.
M&A outlook for the remainder of 2023
We are optimistic about the second half of the year, expecting more transformative M&A opportunities. Macroeconomic conditions will continue to influence dealmaking, but a more stable interest rate environment will make pricing parameters more predictable. M&A has become a crucial growth driver for businesses, enabling repositioning, growth, and long-term success. Cash-rich corporates seeking strategic opportunities will likely lead deal activity, with mid-market M&A dominating and divestitures playing a significant role. Buyers must prioritise access to capital and thorough due diligence, while sellers' success hinges on thorough preparation.
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PwC ranked #1 Global and European M&A Advisor by Volume for H1 2023
Our PwC Corporate Finance team has ranked as the Global and European #1 M&A Advisor by Volume for H1 2023 by Thomson Reuters/ Refinitiv, Bloomberg, Dealogic and MergerMarket
