According to a report by the Boston Consulting Group, M&A dealmakers encountered various challenges over the past year, including higher interest rates, geopolitical tensions, and concerns about a recession. Consequently, deal activity experienced a decline, although the situation seems to be improving now. Certain regions and sectors are recovering at a faster pace than others.
Moving forward, intelligent buyers and sellers will continue to engage in deals even when conditions are less than ideal. In addition to the usual factors, considerations such as sustainability and digital projects have gained importance when evaluating mergers or divestitures. The scarcity of available funds may also drive larger deals, allowing companies to reshape their portfolios or enter rapidly growing industries.
After the surge in M&A funding in 2021 and early 2022, dealmaking during the latter half of last year and the first eight months of 2023 was disappointingly subdued. Year-to-date, companies announced approximately 21,500 deals, valued at a total of USD 1.18 trillion, until the end of August 2023. Deal volume declined by 14 per cent compared to the same period in 2022, while deal value plummeted by a staggering 41 per cent.
This sharp decline followed a particularly active period for dealmaking in 2021 and the first half of 2022. Following the disruptions of 2020, the rebound post-pandemic was in full swing in 2021, with volume reaching approximately 41,000 deals—28 per cent higher than in 2020 and 18 per cent higher than in the pre-pandemic year of 2019. However, in 2022, deal volume was already 9 per cent lower, with 37,000 deals announced, and deal value dropped by 38 per cent to USD 2.7 trillion after the remarkable total of USD 4.3 trillion in 2021.
The persistent decline in M&A activity since the first half of 2022 was visible across various regions. Markets such as India, Taiwan, Italy and Romania demonstrated slightly more resilience, while the US, Canada, France, and Germany were more severely affected.
The most active sectors for M&A in 2022 were energy, power and resource industries, which included renewables, metals and mining, as well as construction, packaging and other materials sectors. However, all consumer sectors, financials, media, telecommunications and even the technology sector experienced decreased deal activity. The healthcare sector also saw a drop in deal volume this year, although it maintained consistent M&A momentum, particularly in Europe.
Both private equity (PE) and venture capital (VC) experienced significant declines in deal activity. Following the spree of dealmaking in 2021 and early 2022, factors such as rising interest rates, stricter financing conditions, and broader economic uncertainties reduced the appetite for new investments. Even existing investments faced sharp devaluations, resulting in numerous “down rounds” for VC-backed companies.
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