Pandemic-Era M&A booms slow down

Global dealmaking suffered a record fall during the second half of this year, as rising interest rates and economic uncertainty brought a period of frenzied activity to an abrupt close.

Mergers and acquisitions worth $1.4tn were announced during the six months to December, according to data provider Refinitiv, down from the $2.2tn agreed in the first half of 2022. It was the biggest swing, from one six-month period to the next, since records began in 1980.

The overall volume of deals struck globally in 2022 was down 38 per cent from 2021, the largest year-on-year drop since 2001. Still, it was at high levels by historical standards, above the global totals seen in 2016 and 2017.

The slowdown was the result of sharp interest rate rises, in the wake of rising inflation and the war in Ukraine, hitting confidence in global markets and increasing the cost of financing. Junk bond markets all but froze up, complicating private equity firms’ ability to fund deals.

Private equity-backed buyouts slowed but many firms have raised large funds that are yet to be fully deployed. Some are making smaller acquisitions and hoping that larger buyouts will become easier next year if debt markets open up.

Private equity groups are also taking longer to deploy their funds, according to Christian Sinding, chief executive of EQT. “The typical cycle has been three years, recently it’s been closer to two years because it shrinks in very hot times, but it could now extend beyond three years again”, he said.

Alison Harding-Jones, head of M&A for Europe, the Middle East and Africa at Citigroup, expected dealmaking in 2023 to be “driven primarily by corporate activity” as companies with healthy balance sheets sought to expand.

“People are very busy. High quality strategic transactions, I think that’s going to be the definition of the first and second quarter next year,” she said.

Some advisers said 2023 might also be a year of two halves, as corporate leaders started to accept bids at lower valuations.

“At some point during the year . . . we’ll start building up again,” said Eric Swedenburg, a partner at the law firm Simpson Thacher. “It won’t be right out of the gate in January. I don’t think we’re out of the woods yet”.

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