M&A and IPO Activity Plummets in 2023, Leaving Dealmakers $1 Trillion Down
In what has been one of the worst years for mergers and acquisitions (M&A) and initial public offerings (IPO) in a decade, dealmakers worldwide are facing a staggering $1 trillion (€914 billion) drop in value in the first half of the year. Inflationary pressures, financing constraints, and geopolitical tensions have dampened activity across regions and sectors, leading to a significant decline in deal volumes.
According to data compiled by Bloomberg, M&A deal volumes have plummeted by 42% year-on-year, totaling $1.3 trillion (€1.19 trillion). This marks the smallest first-half total in a decade, excluding the COVID-impacted year of 2020, and falls below the average for the period. The lack of cheap debt and disagreements over price have contributed to the decline in private equity buyouts. Investment banks have limited their ability to provide debt financing, and alternative sources of debt financing are expensive in comparison.
Strategic buyers have also struggled to pick up the slack, as increasing government intervention has complicated the path to takeovers. In the past six weeks alone, numerous M&A deals worth tens of billions of dollars have either stalled or collapsed due to regulatory hurdles. This includes the $10 billion tie-up of satellite operators SES and Intelsat and Citigroup’s $7 billion sale of its Mexican unit. Other pending deals, such as Microsoft’s $69 billion takeover of games maker Activision Blizzard, face potential rejection by antitrust authorities.
The market for new listings has also been affected, with companies raising just $68 billion through IPOs in the first six months of 2023, a decline of over a third compared to the previous year. Concerns about a global economic slowdown and a mismatch in pricing expectations between companies and investors have contributed to this decline. Investors are cautious due to the expectation of an impending recession, although the market itself has not fully priced in this possibility.
Despite the overall decline, there have been some positive developments in 2023. The pursuit of new treatments for rare diseases in the pharmaceutical industry and the shift towards cleaner energy sources have fueled deals in the healthcare and commodities sectors. The two largest M&A transactions announced this year have been Pfizer’s planned $43 billion takeover of cancer-drug maker Seagen and gold giant Newmont’s acquisition of Australian rival Newcrest Mining. Deals that demonstrate clear industrial logic, involve companies with positive cash flows, and operate in the old economy have proven to be attractive in volatile markets.
Cash-rich sovereign wealth funds from the Middle East continue to seek acquisitions globally to build national champions and increase the region’s influence. Saudi Arabia’s Public Investment Fund and Qatar Investment Authority are actively pursuing deals in various sectors beyond their traditional hunting grounds. Middle Eastern countries are not only interested in financial investments but also eager to establish strategic champions.
Bright spots have been found in the east for equity capital markets bankers, with China accounting for approximately half of the money raised through IPOs this year. The country has eased restrictions on local companies seeking listings overseas and implemented rule changes to encourage more domestic listings. Additionally, state-backed listings in the Middle East, particularly in Abu Dhabi, have attracted significant activity. In Europe, companies focused on energy transition, such as Thyssenkrupp’s Nucera hydrogen unit, have garnered enough investor interest to proceed confidently with IPOs. Carve-outs and spin-offs have also helped fill the void in the US market, with Johnson & Johnson’s consumer health business Kenvue sealing the largest US listing since 2021 in May.
Looking ahead, the next six months of 2023 are expected to witness some IPO activity, as the market remains open and strong companies can still go public. However, many companies are considering a 2024 timeframe for their listings. The uncertainty surrounding the global economic outlook and the potential for a recession continue to weigh on investor sentiment, making cautiousness prevalent in dealmaking.
In conclusion, the decline in M&A and IPO activity in 2023 has left dealmakers facing significant losses. The combination of inflationary pressures, financing constraints, and geopolitical tensions has hampered deal volumes, resulting in a $1 trillion drop in value. Private equity buyouts have been affected by limited debt financing options and pricing disagreements. Strategic buyers have faced challenges due to increased government intervention. The market for new listings has also suffered, with concerns about a global economic slowdown and pricing mismatches between companies and investors. Despite these challenges, certain sectors, such as healthcare and commodities, have seen positive activity. The Middle East’s sovereign wealth funds continue to pursue acquisitions globally, while China and the Middle East have emerged as bright spots for IPOs. Looking ahead, cautiousness prevails, but the market remains open for strong companies to go public.