Global M&A market drops 15% in 2023 to $3.2tn

The global merger and acquisition market witnessed a 15 percent drop year-on-year to $3.2 trillion in 2023, marking its lowest level in a decade, according to recent findings.

Dealmakers grappled with several obstacles, including high interest rates, increased regulatory scrutiny, and mixed macroeconomic signals, forcing them to be more selective in their pursuit of deals, Bain & Co.’s annual report stated.

It highlighted that the gap between valuations was one of the most significant challenges. Additionally, overall strategic deal multiples hit a 15-year low at 10.1 times.

“The drop in deal multiples led to a wait-and-see atmosphere in 2023, with many sellers hesitant to come to the table at a market bottom,” said Les Baird, partner and head of Bain & Co.’s global M&A and divestitures practice.

A decline in tech M&A played a pivotal role with tech deal values dropping by approximately 45 percent.

Furthermore, median valuations plummeted from 25 times in 2021 to 13 times in 2023. However, the energy and healthcare sectors had a strong year, driven by sector-specific dynamics and big-ticket deals.

The research document further highlighted that mega deals were mostly made in the second half of 2023, signaling a potential shift in the outlook of dealmakers.

Despite the decline in deal counts, companies maintained high levels of proactive deal screening and due diligence.

“History shows that downturns and times of disruption always produce newer, stronger competitors that used the turbulence to make market gains,” said Suzanne Kumar, Bain & Co.’s global practice vice president for M&A and divestitures.

The report also highlights an evolving regulatory climate, with at least $361 billion in announced deals facing challenges from regulators worldwide in the past two years.

The average time to reach a regulatory outcome for scrutinized deals is now 12 months, adding complexity to deal planning, it stated.

Looking ahead, the findings pinpoint that generative artificial intelligence is expected to play a more significant role in dealmaking.

In a survey of more than 300 M&A practitioners, Bain & Co. reports that only 16 percent currently use generative AI for deal processes, 80 percent anticipate adopting it within the next three years.

Early users have found the technology to be efficient in generating ideas and reviewing data in the diligence phase, with 85 percent reporting that it met or exceeded their expectations.

However, practitioners also recognized challenges related to data accuracy, privacy, and cybersecurity.

Additionally, the report delves into industries, highlighting that healthcare and life sciences are expected to remain active, driven by high levels of cash reserves and executive confidence.

Energy and natural resources companies will take a more targeted approach to their energy transition acquisitions.

The space industry also closed multibillion-dollar deals in 2023 and is anticipated to continue to grow.