Wells Fargo

Ethan Joseph

2023 M&A includes,  well-capitalised companies making acquisitions in their core businesses. Financial sponsors, which are holding record amounts of capital, deploy it in acquisitions. Uneven performance among companies stoking shareholder activism. Cross-border M&A making a comeback.

The mergers and acquisitions market in the previous year showcased significant differences between the first and second halves. Deal activity was brisk in the first five months, continuing the recording environment from the past years.

In the first half of 2022, there were more mergers and acquisitions than usual, including three "mega deals" for more than USD ten billion. The activity of deals, however, significantly decreased in the second half of the year. Many firms chose to concentrate domestically rather than make acquisitions as a result of macroeconomic instability, erratic capital markets, quickly rising interest rates, and the impact of inflation. Due to deteriorating valuations, prospective sellers were hesitant to sell at prices that were much lower than they had been earlier in 2022.

Large, transformative mergers also came under more intense regulatory scrutiny. Leveraged finance markets were largely shut down by the quickly rising interest rate environment as banks and other lenders dealt with a significant backlog of transactions that needed to be financed, which decreased financial sponsor activity.

However, corporation balance sheets are healthy compared to prior recessionary periods, which could assist stimulate corporate acquisition activity despite an economic slowdown. While analysts and strategists generally predict a slight recession in 2023. It is expected of large corporations to make complementary acquisitions in their core industries. That activity could also manifest as unsolicited or hostile takeover approaches in a market where valuations are still volatile. Three industries, in particular, are ideally positioned to pave the path for increased activity:

Healthcare: Some healthcare organisations are considering mergers and acquisitions in the aftermath of COVID-19. For instance, pharmaceutical firms that have goods with expiring patents must replace them and are looking to buy biotechnology firms.

Technology: Tech companies are still considering going private through go-private deals after a challenging year for technology stocks. Technology-savvy private equity sponsors are expressing a keen interest in take-private deals, which convert publicly traded companies back to private ownership following a sale to one or more financial buyers. In this context when valuations are more favourable to buyers, corporations in search of technological capabilities are also possible purchasers.

Energy: Energy corporations are looking to use the significant cash on hand as a result of the previous years’ skyrocketing energy costs by making acquisitions or returning it to shareholders. Mid-sized energy companies may look for consolidation opportunities since they require scale to compete. Additionally, several energy businesses are working to enhance their environmental, social, and governance (ESG) practices through capabilities like carbon capture or preparedness for the energy transition; M&A is one tool to do so.

The fact that nearly all of these characteristics apply in a very similar manner across all of the developed nations in the globe is another distinctive feature of M&A in the technology industry. This makes technology M&A agreements, as well as the trends that are driving and creating them, more international than those in any other industry. This is due to the ease with which new technologies may be adopted and implemented across national boundaries.