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2023 M&A Outlook

Posted on February 14, 2023 By

Back in 2021, the M&A market enjoyed record-level activity. But 2021 was an anomaly because it followed 2020 when so many deals were put on hold due to the COVID-19 pandemic. 2022 seemed like a slower year, but it was actually a return to normalcy. 2023 is expected to be strong for the middle market, as buyer focus shifts from public markets to private markets. While interest rates have been going up, both strategic and financial buyers are still sitting on record levels of cash. 2023 could actually signify a return to normal for the market and be a great year for business owners looking to sell their companies. 

With so much market volatility expected over the next few years buyers, many investors have shifted their focus from public markets to private markets, particularly investments in middle-market companies. This is expected to continue in 2023 as buyers focus more on investments that have high-quality fundamental operations. 

The rise in interest rates has been well-covered. The cost of debt is going up, and buyers that depend on the debt will look to make up that cost in other ways. However, both financial and strategic buyers are still sitting on record levels of cash, allowing them to take higher equity positions. To mitigate the risk, we may slowly see more structure built into transactions and overall valuations remaining stable.

Supply chain issues still persist following the pandemic, which remains uncontrolled in China and is resulting in ongoing lockdowns and protests in that region. The Russian invasion of Ukraine also continues to be an issue for the global economy. But these broader issues are unlikely to affect the value that you could extract in a deal if you sell your company in 2023, and many strategic buyers may look at acquisition as a way to solve their supply chain issues. It’s important to remember that the M&A market never just grinds to a halt—it always finds ways to evolve.

Deal Volume by Region

North America continues to hold the largest segment of global deal volume (47%) in 2022 and is expected to lead the way in 2023. The Middle East and Africa have also shown high deal counts this year, only 6% below its 2017-2020 average annual deal volume. As a result, these two regions could see more transaction activity in 2023 compared to previous yearly volumes.

Private Equity

Private equity firms were less attracted to M&A in 2022 because of the rising cost of debt and reduced leverage. At the same time, private equity buyers are still sitting on massive amounts of dry powder that will have to be put to use at some point. Currently, private equity firms hold more than a trillion dollars in cash for dealmaking. This is why 2023 is an excellent year for you to consider selling your company. In addition, private equity buyers are expected to be much more strategic with their acquisitions in 2023, focusing on investments that support their platform investments made in previous years. 

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Technology continues to disrupt industries across the board, which remains a huge driver for M&A deals. Advancing technology and innovation helps companies gain new customers and even reduce costs. And finding ways to address cybersecurity risks is an ongoing concern across many sectors. 

As of Q3 2022, software remains the number one industry in M&A for the 10th consecutive quarter. Software M&A deals reached a high deal volume of $178 billion in Q2 of 2022, but then fell by nearly half to $91.4 billion in the third quarter. However, as the technology sector currently faces layoffs and hiring freezes, among other factors, there is the possibility that software does not remain the leader in 2023, reshaping the overall M&A market. 

Engineering Services/Consulting
This sector should see significant activity thanks to aging infrastructure that is getting more government attention, especially in the US, where the Build Back America plan, will result in more than $1 trillion in aggregate spending in coming years. Consulting companies will benefit from having a role in these projects, gaining favorable contract pricing, and generating a great deal of free cash flow due to high margins and a lack of capital expenditure and working capital. It’s also a sector that is ripe for consolidation because it is rather fragmented and boasts a large base of privately owned companies.

Deal activity in the energy sector is expected to gain strength in 2023. The market for valuable assets remains solid, and rather than using debt to finance transactions, energy companies are now more likely to invest free cash flow back into strategic deals with an eye on long-term returns. Companies may also seek to use higher equity from current commodity prices as currency for deals. Even as geopolitical factors (such as the war in Ukraine and COVID lockdowns in China) have continued to apply pressure around the world, energy deal activity has remained strong year over year, and 2023 is expected to be no different. More countries are looking to the US for alternative energy and natural gas production instead of Russia, and this could be a key driver of demand, which will result in more deals and investment in the space. Also, pressure to cut carbon emissions is leading to the divestiture of traditional oil assets in favor of natural gas instead.

Global automotive M&A deal volume was down in 2022 after a hectic 2021, and the sector still faces macroeconomic challenges going into 2023. However, there is still confidence that deal volumes will hold at historical averages. This is because the financial health of the sector, coupled with the transition to electric powertrains and computer-aided software engineering assets, continues to draw investment. While dealmakers may be more disciplined in their capital deployment (due to inflation and higher interest rates), deal volumes will likely remain stable as M&A continues to be one of the most efficient ways for companies to shift their capabilities for an electric future, improve their supply chains, and consolidate scale.

The growing cannabis industry is also emerging as a major sector for M&A deals, and 2023 is off to a strong start to what is forecast to be a busy year. Between the asset values, multiples, and market caps, private equity will largely be driving deals in the sector to consolidate underperforming companies through roll-up strategies. 

In the US, last year Congress failed to pass the SAFE Banking Act, which would have improved cannabis companies’ abilities for financing. As this inaction on federal cannabis reform persists, it lowers the interest of angel investors, who have long supported legalization across the industry. If this type of banking reform and other federal protections can move forward in 2023, strategic acquirers can finally get off the sidelines, and new opportunities will be abundant for licensed companies.

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Pharma and Life Sciences
Uncertainty appears to be in the history books for this sector in 2023. This year is expected to see M&A that resembles years prior to 2022, with total deal value falling in the $225 billion+ range across all subsectors. There is plenty of corporate cash on hand, and a need to keep investing in the medium-term pipeline gaps. This, coupled with the resetting of biotech valuations, will drive an active M&A year in the industry. There is more need for investment that leads to breakthroughs than ever. We can expect to see deals ranging from $5 billion to $15 billion, and maybe even one or more in the $20 billion to $40 billion range in 2023. 

Pharma and biotech M&A will remain focused on oncology and immunology, as well as the central nervous system, cardiovascular diseases, and vaccines. Many companies will push to be leaders in specific therapeutic areas, which means heavy investment in reaching that goal. And satisfying the high demand for shareholder returns is an ongoing priority inherent in this space. In 2023, we can expect to see more structured deals, new approaches to R&D funding, and portfolio reassessments that lead to divestitures.

The services part of the sector should also see strong M&A activity in 2023. These companies need to achieve scale, and M&A is the answer, with private equity leading the front. Private equity will also be keeping an eye on underperforming public companies in market segments that benefit from secular growth trends. 

With all of the supply chain issues in the past few years, industrials is a sector that has been under-invested in when compared to technology and healthcare. Plus, ongoing labor shortages require investment in manufacturing and industrials in order to bridge the gap, making this area ripe for investment in 2023.

Media & Telecom
The media and telecommunications sector is uniquely positioned at the center of many other sectors’ investment patterns and growth strategies. This means there is always optimism regarding M&A deals in the space, especially because large corporates that have major cash reserves are regular players in the industry, and they can afford to be opportunistic. Some factors to watch in 2023 are the focus on capital discipline, pressure on valuations, growing demand for sports, and fewer mega deals.

Streaming ventures are also an area to watch. Many key players are expected to shift some priorities in 2023. This means refocusing efforts to profit from more purposeful content spending, cutting spending on subscriber acquisition costs, reducing customer churn, and launching advertising-based video-on-demand for certain platforms. The market dynamics are changing in this space, and so are investor expectations, so capital spending and discipline are going to be more at the forefront to better gauge profitability.

While the outlook for 2023’s M&A picture differs based on many circumstances, the possibility remains that the year’s deal activity will be similar to average levels of M&A activity prior to the record levels of 2021.

If you are considering selling your company or merging with a strategic partner, our team of dealmaking experts at Benchmark International would love to discuss your options with you. Every day, we find inspiration in helping business owners determine their path to next-level success. Please reach out to us to get the conversation started.


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Benchmark International is a global M&A firm that provides business owners with creative, value-maximizing solutions for growing and exiting their businesses. Benchmark International has handled over $8.25 billion in transaction value across various industries from offices across the world. With decades of M&A experience, Benchmark International’s transaction teams have assisted business owners with achieving their objectives and ensuring the continued growth of their businesses. The firm has also been named the Investment Banking Firm of the Year by The M&A Advisor and the #1 Sell-side, Privately Owned M&A Advisor in the World by Pitchbook’s Global League Tables.





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