Irish News

What is in store for the M&A market in 2023?

Paul Prenter
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We are now well into 2023 and with the corporate world now very much back to business, we can begin to see a picture of what this year might look like from a mergers and acquisitions (M&A) perspective.

Last year – globally – showed a decline in the overall value of transactions, down by 36 per cent relative to 2021 to $3.7 trillion.

However, it is important to put this into context. 2021 was an exceptional year. Bloomberg reported that global M&A activity reached $5.9 trillion, crushing the previous all-time high of $4.2 trillion set in 2015.  Most analysts are predicting that we could see a return to ‘normal’ pre-2021 activity levels this year.

The trend is consistent at a local level.  As we await the Experian full year report, the reported value of Northern Irish M&A for the first three quarters showed an 11 per cent year on year decline set against the backdrop of a blockbuster 2021.

The fall off in global M&A activity in 2022 was most notable at the top end of the market – the ‘mega’ deal segment.  Many analysts suggest that an uncertain market and macroeconomic environment will encourage more small, and fewer large deals in 2023.

Recent interest rate hikes have made borrowing money more expensive, and thereby increased the cost of acquisitions that are financed by debt.  At the same time, however, many companies have performed strongly in recent years, building significant cash reserves. Private equity firms also have an unprecedented amount of money to deploy. Both trade and private equity players will be looking to use their dry powder to execute the right strategic acquisitions.

Valuations are softening from record highs, and it is widely expected that there will be an increase in stressed (and distressed) opportunities. Meanwhile, the current strength of the dollar makes UK and Irish acquisitions and investments by US entities increasingly attractive.

A combination of these factors could bolster activity in 2023 and it is evident that even against a challenging macroeconomic backdrop, deal makers remain bullish about the prospect of more deals taking place.

There may be a spike in activity in some sectors such as technology, health services and energy.  Whichever the sector, for the right opportunities there will remain high levels of interest from credible buyers with ready access to funds.  

One certainty is that market uncertainty will focus buyers’ attention on thorough due diligence. This means that sellers will need to be prepared on their end, with financials and operations ready to face greater scrutiny.

There are signs that transactions may take longer to execute and so the right preparation will be key to mitigating deal creep. ESG will also rise up the M&A agenda.

No one can predict the future, of course, and there will undoubtedly be unforeseen factors that arise through the course of 2023 – but here’s to a busy year ahead.