The world of mergers and acquisitions (M&A) typically slows down when interest rates are higher, uncertainty and market volatility looms, but paradoxically, these periods can offer valuation dislocations and attractive valuations and open doors to opportunities. Drawing from our experience, recent transactiondeals activity, and insights into our clients’ current deals, we hold a positive outlook that 2023 will offer exciting M&A opportunities. While total deal volumes fell last year when compared to the record breaking 2021 financial year, they still managed to surpass pre-pandemic levels by almost 10%. Given the present market conditions, companies with well-planned strategies and the financial capacity , and in some instances, the courage, to make major deals should be able to navigate the landscape and find buying opportunities that may stand to shape their businesses and contribute to their success in growing value for the long -term.
As we begin 2023, the near-term economic forecast appears uncertain as concerns mount over the possibility of a global recession and rising interest rates as central banks attempt to manage inflationary pressures in various regions. The situation is exacerbated by anxious investors still coming to terms with the significant drop in global stock market valuations in 2022, ongoing geopolitical tensions, supply chain interruptions, and stricter regulatory scrutiny. All of these challenges have led to a cautious approach, by both corporate executives and private equity professionals, towards engaging in M&A transactions.
Interestingly, M&A deals conducted during economic downturns often turn out to be the most profitable. Such tough times offer buyers better returns and even significant growth opportunities on the other side of a downturn. The current market conditions, which include a reset in valuations in both the public and private markets, reduced competition for deals, and new assets, including distressed ones, entering the market, present an ideal opportunity for many C-level executives and boards to integrate M&A into their strategic plans. Doing the work to research opportunities with thoughtful analysis and due diligence, and then negotiating favorable terms and valuation with successful execution and integration, Finding out what options you have could put you into the position savvy acquirers to outpace competitors and set a strong foundation for future growth.
In 2022, the top five sectors ranked by M&A volume remained largely the same. Technology led the pack once again, with 2,589 deals worth US$612.6 billion, although this represents a decline of 11 percent and 40 percent YoY respectively. The pharma, medical, and biotech (PMB) sector ranked second, with 1,187 deals totaling US$254.7 billion, a drop of 20 percent from 2021. However, the volume of deals in the PMB sector only decreased by 2 percent YoY. It will be interesting to see how 2023 compares at year end.