M&A activity in 2023 was largely on the backburner, as the value and number transactions were the lowest since 2013. M&A deals decreased by 17% in value to 2.9 trillion, making this the slowest year for deal-making since a decade. Over 55,200 transactions were made in 2023. This is a 6% decrease compared to the previous year and was part of a three-year low.
The Law Gazette reported a decline in European M&A activity of 28%, compared to a worldwide average decline of 13%.
City Firms are relying on the recovery of M&A activities, driven by private equity and a desire for security.
Prices became the main obstacle in 2023 as sellers refused to accept prices that potential buyers demanded. Even major strategic buyers sat on the sidelines, prioritising profits over growth through acquisitions. Capital IQ data indicates that Amazon, Alphabet Apple and Salesforce combined made just 4 acquisitions in 2023. This compares to 18 in 2022.
A rise in 2024
Ten of the biggest deals announced in Q4 2023 showed signs of recovery, giving hope that more will be announced in 2024.
Cybersecurity and AI were the two categories that had the highest valuations for 2023. In 2024, this will remain the most valuable area of transactions.
We expect small transactions to recover faster in 2024, and strategic and financial buyers will be more active.
The Future of M&A
Morrison Forester reported that 27% of the deal value is attributed to technology. Cybersecurity has been selected as the subsector that will bring the most deals in the coming year.
Healthcare was the third largest sector in terms of volume, with North America enjoying its highest level ever.
M&A activity will rise in 2023 due to the ambitions for technological advancement.
Healthcare is expected to see a surge in M&A, as well. The demand for innovative solutions and specialised expertise is high. This will encourage businesses to actively search for acquisitions.
Morrison Forester reported that sponsors’ cautious M&A strategy led to a 33% drop in global private equity deal volume, and a 41% decline in value. Due to the tightening of credit markets and interest rates, sponsors had to change their dealmaking methods. This has led to a 91% increase in the percentage of PE firms that expect to use minorities investments.
AI will help in due diligence, streamlining operations, identifying M&A targets and automating different tasks related to deal making.
As many look to M&A as a way to improve their competitive edge and set the trend, energy is expected to also be a focus. Companies are turning to M&A to boost their competitive advantage and become leaders in their industry. Energy sector investment is growing, but the challenge for companies will be to thrive in an environment driven by technology and the climate anxiety that society feels.
After the economic and inflationary uncertainty of the last year, financial services will prioritize deal-making in 2024. It will be a goal to integrate technology into the industry and create an easy and modern way to change strategy.
In 2024, we can expect to see a lot more M&A activity.