Naturally M&A tends to slow down during times of uncertainty; and the first half of 2023 was overshadowed by fears of a global recession and rising interest rates, combined with the war in Ukraine. As a consequence we have noted a more cautious approach being taken to deal-making than in previous years.
Nonetheless many market watchers have expressed optimism about M&A in the reminder of 2023. Market volatility can be a time when valuations become more attractive and different niche opportunities present themselves. Whilst overall deal volumes in 2023 so far are generally below the record-breaking transaction levels in 2021/2022, they do remain above pre-pandemic levels. Clearly the pandemic did not damage the M&A market as much as some may think.
Our current view is that we are in for a promising 2023 for deal making. However this will require companies to have well thought out strategies and the financial courage to make transformational deals that will shape their businesses and contribute to their longer-term success. Companies that prioritise ESG ("Economic, Social and Governance") factors when considering deals will likely be the most successful, especially given that VC & PE investors currently have a strong focus on targets with solid ESG strategies.
There are of course continuing recessionary fears amongst dealmakers; with all eyes focused on interest rates. The economic downturn dominating many major economies in 2023 is a challenge the M&A market also faces. Buyers are contending with higher interest rates, which of course increases the cost of financing. We have also found that transactions (mostly due to extended diligence) are taking longer than usual due to the added emphasis on "stress testing" potential targets. However history tells us that successful businesses do not pause M&A during downturns, but instead they take advantage of opportunities to reshape their industry. Challenging market conditions often create opportunities for growth.
Whatever the M&A market brings for the remainder of 2023, it is clear that there are still plenty of opportunities available for those wishing to buy or sell in the current market – despite being camouflaged by the economic challenges that linger over many businesses.
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