The slow-down in M&A activity, including minority stake transactions and venture capital financing rounds that persisted throughout 2022, has continued as expected into 2023. At the end of last year commentators were cautiously pointing towards H2 2023 for activity in the M&A market to pick up and as we approach the close of H1 there is no sign of a rebound in sight just yet.
Q1 2023 had a global deal volume of $559 billion, the third-lowest global quarterly M&A deal volume in the last 10 years, with overall deal volumes at $1.3 trillion for the year so far. This is down from $2.2 trillion over the same period in 2022. The only lower quarterly deal volumes were Q1 2013 ($502 billion) and early-pandemic Q2 2020 ($442 billion). This year’s performance was assisted by rising interest rates, high inflation and fears of a recession, but commentary remains cautiously optimistic even as recession anxiety appears to still hang heavy.
The half closed with JPMorgan Chase & Co taking the top spot as the number one M&A adviser globally, knocking Goldman Sachs Group Inc from pole position for the first time in five years. JPMorgan Chase & Co’s $284 billion of deals gave them a 22.5% market share, compared to Goldman Sachs’ $237 billion or 18.8% market share.
Central Banks globally continued to post rate increases in H1 that are keeping people wary and as recently as June the Bank of Canada and Reserve Bank of Australia both delivered surprise rate hikes.
The banking crisis that started with the collapse of Silicon Valley Bank (SVB) in March, and was quickly followed by Credit Suisse Group AG requiring an emergency rescue deal, which saw them acquired by UBS Group AG in June, contributed to this environment of volatility and uncertainty.
It is expected that these events had the impact of postponing some announcements. M&A benefits from a well-functioning financing market, so combined with geopolitical tensions, inflation and those aforementioned interest rate hikes continuing to weigh on the broader economy, it’s no doubt having a detrimental impact on companies looking to go public.
Sale premiums have fallen and with deflated startup valuations, sellers are likely more reluctant to cash out at these lower prices. There is an argument to be made that these are more ‘realistic’ valuations, having come down from the high points of 2022 but potential suitors are still finding themselves facing higher costs of capital, and with those rising interest rates again having an impact, even bargain buys are being made more expensive.
On the flipside a reset in valuations, lessened competition for deals, and new assets coming to market presents real opportunities for savvy buyers to achieve better returns. Whether that means these depressed valuations will lead to larger companies taking advantage and offering hostile takeover bids remains to be seen.
Information and Communications tech (ICT), medtech, fintech, food and manufacturing, the more traditional areas that have seen start-up success over recent years continue to see activity while heavily funded startup sectors, like cybersecurity and fintech saw some large purchases but the overall trend shows deal-making on the decline. Overall M&A activity in the automotive industry decreased by 14% in Q1 2023. With AI and ChatGPT in particular dominating a lot of the conversation in H1 eyes are eagerly watching that sector to see what develops.
Significant M&A activity in H1 2023
JPMorgan acquired First Republic Bank in May. More consolidation is expected in the banking sector as we continue to deal with the fallout from the collapse of Silicon Valley Bank.
In Q1 Pfizer Inc acquired cancer care biotech company Seagen for $43 billion.
In March Toshiba Corp’s board accepted a buy-out offer of $15.2 billion from a group led by private equity firm Japan Industrial Partners which saw the conglomerate taken private and firmly in domestic hands.
CVS Health Corp arranged a takeover of Oka Street health Inc, a primary care provider (10.6 billion dollars).
A Silver-Lake led consortium bought software maker Qualtrics international Inc (12.5 billion dollars)
Qualcomm Technologies acquired Israeli company Autotalks, bringing the startup which creates vehicle chips aimed to improve road safety, into their portfolio of cloud-connected automotive platforms.
Endeavor Group Holdings Inc. announced it would acquire World Wresting Entertainment Inc. for more than $8 billion on April 3.
In April L’Oréal, the world’s largest cosmetics company announced that a deal had been signed to acquire Aēsop, the Australian luxury beauty brand.
Hewlett Packard Enterprise acquired Israeli cloud security company Axis Security in a $500 million purchase.
It was reported that German micromobility startup Tier was in late-stage acquisition talks with their rival Bolt.
In May U.S. midstream company Energy Transfer completed a $1.45 billion acquisition of Lotus Midstream Operations.
What to expect in H2 2023
Looking further ahead commentators are optimistic that deal-making is likely to accelerate in the back half of the year, driven by factors such as well-capitalized companies making acquisitions in their core businesses, financial sponsors deploying funds and cross-border M&A.
There will be a pent-up demand for M&A.
Depressed markets provide activist investors with the opportunity to launch new activist campaigns. Activists especially like non-core assets that can be sold or spun off easily however as inflationary pressures remain a factor coming out of June and disruption continues in the financing market we shall have to wait and see how H2 develops.
Debt financing is required. If there is a negative environment for debt financing from the banking sector then private equity firms may need to step in and pick up the slack.
Finally – Deal Of The Year 2022
We are delighted to announce that Global Shares was been named winner of the M&A Deal Of the year Award 2022 at the 17th Annual Finance Dublin Deals of the Year Awards in June 2023.
By visiting a third-party site, you may be entering an unsecured website that may have a different privacy policy and security practices from J.P. Morgan standards. J.P. Morgan is not responsible for, and does not control, endorse or guarantee, any aspect of any linked third-party site. J.P. Morgan accepts no direct or consequential losses arising from the use of such sites.
Please Note: This publication contains general information only and Global Shares is not, through this article, issuing any advice, be it legal, financial, tax-related, business-related, professional or other. The Global Shares Academy is not a substitute for professional advice and should not be used as such. Global Shares does not assume any liability for reliance on the information provided herein.
