Global M&A Slows in Q4 2023: WTW Deal Monitor

In the final quarter of 2023, global mergers and acquisitions (M&A) activity experienced a notable decline, revealing a struggle for buyers to add value, according to research from WTW's Quarterly Deal Performance Monitor (QDPM).

Companies completing M&A transactions in Q4 underperformed the broader market by -13.6 percentage points (pp) based on share price performance, marking an all-time low since 2008. This follows a negative performance of -8.7pp in the previous quarter. The full-year figures for 2023 indicate an underperformance by buyers of -7.2pp compared to nonacquirers, a significant increase from the -0.8pp recorded in 2022, according to the report.

WTW findings show that despite the challenging results, the long-term trend over 15-plus years suggests that M&A deals have generally outperformed the market since the global financial crisis (+1.5pp). However, the fourth quarter of 2023 demonstrated a departure from this trend.

The global deal volume plummeted by 27 percent in 2023, with 619 transactions completed, compared to 853 in 2022. Large deals (valued over $1 billion) were down by 30 percent, continuing a decline that began in 2020. The number of mega-deals (valued over $10 billion) also saw a decrease from 15 in 2022 to 11 in 2023, potentially indicating a return to pre-pandemic levels, WTW found.

Factors contributing to this decline include persistent inflation, rising interest rates, and geopolitical instability. Jana Mercereau, head of corporate M&A consulting, Great Britain, at WTW, commented, "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."

Looking ahead, Ms. Mercereau continued, "Despite these headwinds, inflation and the cost of financing seem to be stabilizing and the record level of dry powder waiting to be deployed suggest a rebound of activity in 2024. With transactions facing greater scrutiny, however, successful bids will depend more than ever on exercising a high degree of caution, a focus on 'best-fit' deals, and thorough due diligence."

North America experienced a 21 percent decrease in completed deals compared to 2022, while European dealmakers underperformed their regional index. The Asia Pacific region outperformed its index but still witnessed a 23 percent decrease in deal volumes compared to the previous year.

Ms. Mercereau anticipates that macroeconomic volatility and geopolitical conflict will continue to challenge dealmakers, leading to a trend of targeting smaller midmarket transactions that are easier to execute and less risky to finance. Additionally, she expects joint ventures, strategic alliances, and minority investments to gain momentum in 2024 as companies respond to market disruption by sharing and mitigating risks in pursuit of strategic deals, with a renewed focus on technology.