Global M&A: What’s on the Horizon for 2023?

Author: Hanna Shea, World Law Group

M&A lawyers and W&I insurance brokers saw long hours, late and often sleepless nights with the booming M&A market in 2021, which was a record year for M&A deals. Macroeconomic factors such as inflation, supply chain issues, the Russian invasion of Ukraine, and lingering pandemic effects impacted the market no matter where one was trying to get a deal done in 2022. How was the M&A market impacted and what trends will we see in 2023?

WLG sat down with Marsh—the largest W&I insurance broker—to hear what they saw last year and expect to see in the coming months. Here’s what we learned about the markets around the globe in a nutshell.

• In the US, the federal government recently raised interest rates again in its efforts to combat inflation, however the rate of increase is trending down. With borrowing costs high, buyers and sellers struggle to find equilibrium. Q1 of 2023 going into Q2 will see a depressed M&A market. However, inflation should be under control and drastic increases in interest rates should go down in the second half of the year, so the market should see a decent rebound.
• Political uncertainty in the UK pushed the financial markets, banks, and investment community toward a risk-off environment, impacting the M&A volumes particularly in Q3 going into Q4 in 2022. With more political stability in 2023, the market will be able to build confidence with the global communities and move toward more of a risk-on environment.
• In the Middle East, there has been a significant increase in M&A activity in any sub-sector relating to energy, due to both the impact of the Russia-Ukraine conflict and the transition to net-zero initiatives around the globe. Africa is seeing a lot of inbound investment, primarily from the UK, US, and Middle East. This is a mix of private capital investments and strategics looking to trade in the region, particularly around energy and infrastructure, financial services and payment processing, and telecommunications. The trends in both the Middle East and Africa are expected to continue in 2023.
• M&A in Europe kept its pace in 2022, with a slight slowdown in Q4. The drop hasn’t been as dramatic as one would have expected given the current macroeconomic conditions, however the lead times on getting deals done have increased. As in the US, there is a discrepancy in valuations with buyers and sellers. Europe is a diversified region with different industries and players—energy is growing in southern parts of Europe, while the northern parts are seeing a slowdown in tech and mega deals.
• With China reopening, Asia should see more deals in 2023 as opposed to last year. Industries such as manufacturing, in which deals were not doable in 2022, are coming back to the market. Real estate, however, likely won’t come back any time soon, since the Chinese real estate market has not yet recovered from the effects of the pandemic. Other sectors that should see a boom this year include renewables and infrastructure in India and Southeast Asia, and healthcare across Southeast Asia. Domestic deals in Japan continue to be strong. Overall there is optimism for the M&A market in Asia, with the only market there seeing a lower pipeline of deals being Korea, due to very high interest rates there.
• The economy in Australia has been resilient, and the demand for resources was strong in 2022. Employment also remains strong, however rising interest rates did present some challenges. As in the US and Europe, there were valuation gap issues between buyers and sellers. While interest rates will continue to rise in the beginning of 2023, the increases could end as soon as March, and deal activity should pick up pace around June or July.

Overall, despite the large macroeconomic impacts of 2022 and some economic uncertainty, the outlook for the M&A markets around the world in 2023 is (cautiously) optimistic. Interest rates should level out, combating inflation and bringing buyers and sellers into more of an equilibrium.

Check out the full recording here.