Global M&A hits low in Q4 2023 amid economic challenges

Latest data on global mergers and acquisitions (M&A) reveals a significant downturn in Q4-2023, with performance hitting a record low. New research from WTW's Quarterly Deal Performance Monitor (QDPM) indicates a dip in M&A activity, with buyers finding it difficult to add value in the final quarter of 2023.

According to analysis based on share price performance, companies concluded M&A deals in Q4 undervalued the wider market by -13.6 percentage points (pp) for transactions valued over $100 million, struck between October and December 2023. The figure represents an all-time quarterly low since 2008, the inception of the study, and follows a performance dip of -8.7pp in the previous quarter.

Conducted in tandem with the M&A Research Centre at Bayes Business School, complete year figures for 2023 show that buyers underperformed by -7.2pp in comparison to non-acquirers. Contrastingly, deals have outperformed the market since the global financial crisis, despite 2023's underperformance and a marginally negative full-year performance of -0.8pp in 2022, according to the long-term trend observed over the past 15+ years (+1.5pp).

In 2023, global deal volume fell by 27%, with 619 transactions completed compared to 853 in 2022. This trend was primarily driven by factors such as persistent inflation, rising interest rates, and geopolitical instability. Moreover, large deals (valued over $1 billion) saw a 30% drop, WTW revealed, continuing a decline that began in 2020, with 145 completed compared to 202 in 2022.

Despite these numbers, the Asia Pacific (APAC) region managed to outperform its regional index (+6.4pp) with 155 deals completed in 2023, standing as the only demographically-defined region to do so. However, like other regions, APAC volumes were still down 23% from the previous year (200 deals in 2022).

Meanwhile, North American acquirers sealed 317 deals in 2023, marking a 21% reduction, compared to the 402 deals completed in 2022. European dealmakers also underperformed on their regional index, showing a negative performance of -7.6pp with 117 deals in 2023. This decreased volume is down from 203 deals in 2022.

Massimo Borghello, Head of Human Resource M&A Consulting, APAC at WTW, acknowledges the challenging year, stating: "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."

Despite these obstacles, Mr. Borghello remains optimistic, saying, "Inflation and the cost of financing appear to be stabilising and the record level of dry powder waiting to be deployed suggest a rebound of activity in 2024."

Looking forward, WTW has outlined five key M&A trends for 2024: a focus on AI in M&A; 'small-ball' deals driving deal flow; an increase in creative partnering; dominance of private equity; and a quest for value. Mr. Borghello also noted that recent increased business cooperation between China, Hong Kong, and Middle Eastern countries could stimulate increased deal activity due to the strong momentum observed in Middle East M&A activity in 2023.