Resilience of the M&A Market

From the sharp decline during the pandemic, to the record breaking recovery in 2021, and then the steep drop in 2023, the global M&A market has delivered a masterclass in volatility.

Hardened by consecutive macroeconomic, geopolitical, and regulatory challenges, many M&A professionals are approaching the coming year not with hesitation, but with a healthy dose of optimism. Yes, it was an extremely difficult year for dealmaking. And yes, few can remember a more challenging period for M&A.

Throughout 2023, global M&A activity declined by 16 percent compared to the previous year, falling to 3.1 trillion dollars. This stands in sharp contrast to other market indicators, as technology and AI driven stocks pushed the S&P 500 up by 24 percent. A longer term perspective reveals the depth of the 2023 M&A trough. In the United States, the world’s most active M&A market, activity fell to its lowest proportion of S&P 500 market capitalization in the past 20 years.

Factors Supporting the Resilience of the M&A Market

Several factors support the resilience of the M&A market. From the rise of artificial intelligence to the growing importance of sustainability and the emergence of a more demanding, tech savvy consumer base, the business landscape is undergoing major transformation. In this context, CEOs across industries state that M&A has become more critical than ever as a strategic tool. Especially when companies must adapt quickly, an organic growth strategy can be significantly weaker compared to an effective M&A strategy.

The increase in activity during the fourth quarter of 2023 signals renewed optimism in the market.

For example, our recent analysis of the world’s largest publicly listed companies, referred to as the Global 2,000, shows that companies completing two or more small or mid sized deals per year over the decade through 2022 generated a median excess total shareholder return of 2.3 percent.

Cash and Private Equity Investments

In 2023, private equity activity declined by 37 percent to 560 billion dollars. However, PE investors are expected to return to the market. Some funds will need to consider near term exit strategies and reinvestment plans.

Regional and Sectoral Performance

In 2023, total M&A deal value fell by 16 percent to 3.1 trillion dollars. Although average deal size increased by 14 percent, the number of transactions declined by 27 percent compared to the previous year.

Americas: The most active region, accounting for more than half of total activity.
Europe and Middle East: Deal value fell by 30 percent and deal volume by 29 percent.
Asia Pacific: Deal value decreased by 19 percent, reaching its lowest level in the past decade.

Preparing for the Future

Leaders anticipating a market recovery in 2024 are taking steps to strengthen their M&A teams and strategies. Companies may consider the following actions:

-Reassessing M&A themes and updating strategy.
-Adopting new approaches such as localization to address rising geopolitical risks.
-Setting a higher value creation threshold to balance the cost of capital.
-Exploring partnerships and alternative deal structures such as joint ventures and strategic alliances.