HONG KONG, January 10, 2024 — Global mergers and acquisitions (M&A) activity lost steam in the final three months of 2023 with buyers struggling to add value, according to new research on completed deals from WTW’s Quarterly Deal Performance Monitor (QDPM).
Based on share price performance, companies completing M&A deals in Q4 underperformed the wider market[1] by -13.6pp (percentage points) for acquisitions valued over $100 million between October and December 2023. This result is an all-time low for any quarter since 2008 (when this study began) and follows a negative performance of -8.7pp in the previous quarter.
Run in partnership with the M&A Research Centre at Bayes Business School, the full year figures for 2023 reveal an underperformance by buyers of -7.2pp compared to non-acquirers. This compares to the marginally negative full year performance of -0.8pp recorded in 2022. Despite these latest results, the long-term 15+ year trend shows deals have outperformed the market since the global financial crisis (+1.5pp).
| 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Average Annual Performance (pp)* | +4.5 | +5.5 | +10.1 | +5.4 | -1.3 | -3.0 | -5.0 | -1.9 | +1.4 | -0.8 | -7.2 |
Global deal volume was down by 27% with 619 transactions completed in 2023, compared to 853 in 2022, driven by persistent inflation, rising interest rates and geopolitical instability. Large deals (valued over $1 billion) were down by 30% in 2023, continuing a steady decline that began in 2020, with 145 completed compared to 208 in 2022. Eleven mega deals (valued over $10 billion) closed in 2023 compared to 15 in 2022.
Asia Pacific (APAC) was the only region to outperform their regional index (+6.4pp) with 155 deals completed in 2023. As with other regions, however, APAC volumes were down 23% compared to last year (200 deals in 2022).
North America acquirers closed 317 deals in 2023, 21% fewer compared to the 402 deals completed in 2022. European dealmakers also underperformed their regional index and showed a negative performance of -7.6pp with 117 deals in 2023. Deals volumes are down compared to the 203 deals in 2022.
“Inflation and cost of financing seem to be stabilising and the record level of dry powder waiting to be deployed suggest a rebound of activity in 2024.”
Massimo Borghello | Head of Human Resource M&A Consulting, APAC, WTW
Massimo Borghello, Head of Human Resource M&A Consulting, APAC at WTW, said: “It has been a tough 12 months. M&A deals have been weighed down by geopolitical conflict, recession fears, rising interest rates and the high cost of capital. Despite these headwinds, inflation and the cost of financing seem to be stabilising and the record level of dry powder waiting to be deployed suggest a rebound of activity in 2024.
“APAC deal volumes will likely remain below historical highs until China M&A exhibits a fuller rebound. However, we expect to see areas of growth. These include Japan M&A activity, which was resilient in 2023, and we expect this to continue and potentially accelerate in 2024.
“Recent increased business co-operation between China, Hong Kong and Middle Eastern countries is likely to drive increased deal activity in region, given the strong momentum observed in Middle East M&A activity in 2023.”
For 2024, the outlook for the M&A market remains hard to predict. With high borrowing costs, geopolitical conflict, and a packed election calendar around the world, the potential for disruption in 2024 remains considerable.
Nevertheless, current conditions provide an opportunity to pursue strategic deals that may not be available when competition for assets intensifies during the next upturn in the M&A cycle. With fundamental drivers of M&A activity remaining intact, these are five top trends for the year ahead:
01
A seismic shift in investment focus towards artificial intelligence (AI) is expected in 2024. Although dealmakers have expressed reservations about AI, companies are increasingly directing their attention and resources toward AI-based businesses. This breakthrough technology and the technical talent within AI start-ups are also being seen as a potential boon for improving M&A processes and value creation.
“From enhancing efficiency through automation to fostering innovation, AI’s potential is vast. Deal success, however, will also depend on the buyer’s ability to build a culture that supports innovation with AI and its power to enhance the employee experience.
02
Large deals (valued over $1 billion) have continued to see a steady decline in volume since 2020, according to our M&A analysis. The prevailing high interest rate environment has sparked a distinct trend in M&A to continue into 2024, as dealmakers increasingly target smaller mid-market transactions that are easier to execute, less risky to finance, and offer a unique and strategic fit within an acquirer’s portfolio.
03
With a higher cost of capital and greater regulatory scrutiny further complicating the M&A landscape, WTW expects joint ventures, strategic alliances and minority investments to gather pace in 2024 as companies respond to market disruption by sharing and mitigating risk.
When investing cross-borders, protectionism and foreign ownership policies will also be additional factors at play in this trend towards greater risk sharing.
04
As the valuation gap between buyer and seller continues to narrow, targets will become increasingly attractive and help to drive a recovery in deal flow in 2024. This will be especially welcome news to private equity firms, who have been under mounting pressure to deploy over US$2 trillion in dry powder and are expected to dominate the M&A market in 2024.
05
Dealmaking has become more complex and competitive. Traditional strategies are struggling to be effective in delivering a competitive edge. Improving the odds of success in 2024 will depend not only on a laser-like focus when searching for ‘best-fit’ deals, robust due diligence and ESG integration, but also the ability to manage talent risks in a tight labour market, which if left unchecked can quickly undermine deal value.
In the fast-paced M&A world, AI is also rapidly emerging as a game-changer and has the potential to significantly speed up M&A deals, from due diligence to post-merger integration. Deployed correctly, AI capabilities, may be the key to unlocking greater value through M&A.
WTW’s M&A practice combines our expertise in risk and human capital to offer a full range of M&A services and solutions covering all stages of the M&A process. We have particular expertise in the areas of planning, due diligence, risk transfer and post transaction integration, areas that define the success of any transaction.
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