After a roller-coaster 2022, M&A market looking to soar in 2023

Hopes are high that promising trends will translate to profitable deals

2022 was a mixed bag. Things started well but soon went downhill for global mergers and acquisitions (M&A). However, developing trends are showing signs of recovery even if economic uncertainty is expected to extend well into 2023. While organizations are staying optimistic, Deloitte Corporate Finance LLC (DCF) is helping its clients make the most of the opportunities.

2022: Great start, not-so-great finish

Following a year of record-breaking M&A activity, the M&A market declined in 2022. In the first half of the year, despite year-over-year declines in deal closings and several emerging headwinds, the US M&A market remained robust. However, factors like spiking inflation, rising interest rates, stock market volatility, and geopolitical tensions continued to disrupt both the public and private markets. Further, forecasting and supply chain planning remained elusive amid the uncertainty, exacerbating supply chain issues and leading to difficult inventory and sales planning.

For DCF, 2022 began promisingly, with clients exploring their options for liquidity. Despite the uncertainty, many of DCF’s clients and prospects performed well throughout the year. According to Mergermarket, DCF was recognized as the No. 1 financial advisor to global M&A activity in 2022 (as measured by deal count), completing 704 deals. Successful outcomes were largely driven by the fact that quality, recession-resistant, high-cash-flow assets continued to attract attention and premium valuations, as well as the prevalence of private equity (PE) groups focusing on scaling existing platforms via add-on acquisitions that typically commanded lower valuations.

2022 year in review/2023 industry outlook

The 2023 outlook: Optimism with a tinge of caution

Many of the drivers of uncertainty that presented themselves in the second half of 2022 are still present, but there are also reasons to be optimistic about the opportunities for deal-making in 2023. While borrowing money is considerably more expensive today than it was a year ago, PE groups continue to sit on an unprecedented amount of dry powder that needs to be deployed. As valuations become increasingly attractive, PE deal activity is likely to grow.

While macroeconomic uncertainty and inflation are currently present across the globe, the United States is believed to be better positioned than other industrialized countries, especially when it comes to the strength of the US dollar against other currencies. This could make cross-border transactions more attractive to US-based public and privately held companies with strong balance sheets, giving them more purchasing power to acquire attractive overseas targets. A few other regulatory changes are likely to further stimulate economic growth.

Industry outlooks

Time to tackle disruption with innovation

Despite the numerous macroeconomic- and company-specific headwinds that posed challenges to deal activity in 2022, many of the drivers of uncertainty that presented themselves in the second half of 2022 are still present. However, there are also reasons to be optimistic about the opportunities for deal-making over the next year.

Many of our clients are continuing to find ways to innovate and adapt in this market landscape, and there continues to be a significant cash balance and alternative capital allocation dedicated to middle-market M&A. While companies could face more hurdles in closing deals in 2023 than they may have during the surge of post-pandemic deal activity (i.e., less frothy valuations, increased scrutiny in due diligence, more cautious buyers, etc.), many private equity groups and strategic acquirers will still be looking for creative ways to deploy capital and execute upon their strategic plans.

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