M&A market may not survive 2023
2022.12.29 14:17
M&A market may not survive 2023
Budrigannews.com – Dealmakers aren’t getting their money’s worth, as they do with numerous value-destroying mergers and acquisitions. They’ve seen a shocking turn of fortune after 2021’s record-breaking $5.8 trillion in business. The downturn will last until 2023.
In 2020, after CEOs and buyout tycoons had recovered from the initial pandemic shock, they went on a massive shopping spree. According to data from Refinitiv, the following year saw 64% more mergers and acquisitions—40% more than the previous record high of $4.1 trillion set in 2007, just as the world was about to plunge into a financial abyss.
As a result, the most recent decline is understandable, especially in light of the fact that higher interest rates were a factor in the 17% drop in the S&P 500 Index for the year ending in the middle of December. Deal volume, on the other hand, fell to about $3.5 trillion, down 36% from the same time last year, but still ahead of 2020’s pace. There might also be a significant change to those numbers: After U.S. trustbusters filed a lawsuit to prevent the $69 billion acquisition of video game developer Activision Blizzard (ATVI.O) by Microsoft (MSFT.O), the year’s largest transaction is in jeopardy.
The new reality is reorienting investment bankers. According to Preqin, the focus will be on private equity firms trying to use $800 billion of old cash that was in buyout funds around the world as of the end of November. The sum, when leveraged, could possibly support approximately $2 trillion in investment. In 2022, private equity firms had already reached an all-time high of 22% of deal volume.
Banks want to get rid of billions of loans before lending again because investors no longer want to buy them. The end of extremely cheap money must also be embraced by both buyers and sellers. Costs of borrowing are rising: According to the ICE BofA Single-B High Yield Index, debt issued by businesses with lower credit ratings yields nearly 9%, roughly twice the rate a year earlier. Even though pharmaceuticals and other cash-rich industries can continue to operate, this financing environment suggests that corporate acquirers will use more stock as payment.
More Consumer demand and business
Deal advisers face another challenging year in spite of hopes for recovery, as the acquisition annals indicate, with many already cutting jobs and bonuses. M&A volume fell for two years after 2007, falling 52 percent from peak to trough before recovering. The same thing happened after 2015, albeit with a 21% drop that was smaller. Bankers will be lucky to avoid a repeat of 2022 given the gloomy economic outlook.
Data from Refinitiv showed that worldwide mergers and acquisitions volume for 2022 stood at $3.5 trillion as of December 12. The number of deals reached $5.8 trillion in 2021, marking the activity’s peak.
