H1 2023 Global M&A Performance
Introduction to Global M&A Trends
In the first half of 2023, the global M&A landscape faced notable fluctuations driven by a mix of economic pressures and market dynamics. Despite these challenges, certain sectors exhibited resilience, particularly in the middle market. The interplay of inflated interest rates and large cash reserves yet to be invested by corporations and financial sponsors created a complex backdrop for M&A activities. Notably, deal volume in the second quarter nearly touched record lows, reminiscent of the 2020 pandemic downturn, with just 2,944 closed deals compared to the 2,206 deals in Q2 2020.
Key Performance Metrics and Market Dynamics
Total deal activity for the first half of the year amounted to $1.3 trillion, marking the second lowest volume in a decade. Year-over-year (YoY) deal value saw a steep decline of 34.9% from Q2 2022, highlighting a lack of growth momentum. The trajectory of M&A activities continues to be influenced by numerous variables, including monetary policies, interest rate adjustments by the Federal Reserve, and potential policy easing in the near future. These factors not only impacted the performance in H1 2023 but are poised to shape expectations for the second half of the year.
Middle Market Insights and Future Projections
Despite a general downturn, the middle market demonstrated remarkable resilience. Middle market deal volumes sustained a steady pace, with average EBITDA multiples climbing to 9.1x in Q1 2023 from 7.2x in Q4 2022. This trend suggests heightened buyer selectivity and premium pricing, which, coupled with the anticipated re-engagement in acquisition strategies, sets the stage for potentially robust middle market activities as the market stabilizes.
The persistence of valuation discrepancies between buyers and sellers, coupled with the high cost of capital, continues to elongate transaction timelines and suppress deal sizes. However, private businesses are expected to navigate these valuation challenges more robustly than their public counterparts, potentially weathering the valuation downturn more effectively.