The global mergers and acquisitions (M&A) market continued its decline in the first half of the year, down 8% in volume and 15% in value from July-December 2022 levels as a result of unfavourable macroeconomic factors, as well as a reduction in the number of mega-deals (those over USD 1 billion), according to the PwC Global M&A Industry Trends report, mid-2023. The decline was even sharper compared to the first half of 2022, down 14% in volume and 40% in value, but even so, the market remains above pre-pandemic levels.
"In Romania, the M&A market continues to be quite active in many sectors, especially in the energy, IT&C and professional services sectors, with high interest from both investment funds and companies looking to make strategic acquisitions. There is money in the market and deals will continue, but as we see globally, the era of megadeals has entered a shadow, with more focus now on the segment of profitable mid-sized companies that serve investors' strategic development and growth objectives", said Cornelia Bumbacea, Partner, PwC Romania.
For mega deals, with a value of more than USD 1 billion, the drop was almost twice as large. Compared to the record reached in 2021, the number of transactions over USD 1 billion decreased by 58%. And globally, in the first half of the year, the technology, media and telecommunications (TMT) sector was the most active, generating about 28% of deal volume. In terms of value, the energy, utilities, and resources (EU&R) sector led the way, with 23% of total deal value.
"Mergers and acquisitions are an increasingly important driver of growth, and company leaders see transactions as a key tool to reposition and streamline their businesses and achieve sustainable results. There is no doubt that the current macroeconomic conditions will continue to influence M&A activity, and the stabilisation of inflation and interest rates will be reflected in valuations and drive deal growth," said George Ureche, Director and M&A Leader, PwC Romania.
Evolution by region
In Europe, Middle East and Africa (EMEA), transaction volume decreased by 12% in the first half of 2023 compared to the same period in 2022 but remained above 2019 levels. At the same time, transaction value decreased by 34% compared to the first half of 2022.
In the Asia-Pacific, deal volume declined by about 14% compared to the first half of 2022 amid declining M&A activity in China, Australia, and South Korea. In the Americas, the number of deals was down 5% compared to the same period in 2022 and the value was 35% lower.
First half of the year's main players
Corporates have set the pace for larger deals this year, with corporate buyers accounting for two-thirds of the announced megadeals, as Private Equity (PE) has focused more heavily on portfolio company transformation and M&A, as well as on public-to-private deals.
The sectors witnessing the highest level of megadeals activity—pharma and life sciences and the energy, utilities, and resources sectors—are those associated with megatrends such as technological innovation, digitalisation, ESG and the energy transition.
End of year trends: M&A with mid-sized companies dominate
In a world of rapid change, CEOs need to adopt a bold M&A strategy to enable them to keep ahead of the competition. But bold doesn’t have to mean big. M&A can transform business models in many forms, shows the report.
Mid-market M&A will dominate and generate a large share of total deals in the second half of the year. The stars, however, will be transactions by cash-rich corporates which allows them to do larger, transformational deals.
Lower public company valuations will also create public to private opportunities.
The uptick in restructuring activity in the first half of 2023 is expected to continue in the second half as financing pressures are becoming insurmountable for some, including the higher cost of debt, tight credit and challenges raising capital.
The sectors expected to experience a higher level of restructuring activity include retail and consumer discretionary, real estate and industrials.
In conclusion, for buyers, access to capital will be essential. For sellers, preparation will be the key to success.
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