Litera 2023 Year-end Global M&A Activity Report: Nadir or a New Normal?

Thu 21 Dec 2023

The global M&A market, once soaring to unprecedented heights, is now grappling with complex challenges due to a number of factors that have resulted in a notable deceleration in deal activity. As we approach the end of 2023, Litera's year-end global M&A report reveals intriguing trends and shifts that define the current landscape. In this blog, we highlight key findings from the report, providing a snapshot of the evolving dynamics in mergers and acquisitions.

Market Overview: A Receding Tide

After reaching staggering peaks in 2021, the M&A market has faced a steady decline over the past seven quarters. Economic uncertainties, driven by inflationary pressures, interest rate hikes, and the looming threat of a global recession, have contributed to this slowdown. While 2023 may still fare reasonably well compared to pre-COVID-19 years, the landscape has undeniably shifted.

  • Dealmaking Trends: The third quarter of 2023 witnessed just over 23,000 deals amounting to $2.7 trillion. However, a closer examination reveals a declining trend in quarter-over-quarter deal activity, raising questions about the potential for a robust fourth quarter. Central bank interventions, particularly the significant increase in interest rates, have impacted the ability of financial buyers, including private equity firms, to engage in M&A activities.
  • Deal Size and Sectoral Shifts: While the overall deal activity is on the decline, the deals that are materializing are larger than ever, with the 2023 average deal size approaching $390 million. Notably, deals surpassing $1 billion now constitute approximately 80% of global M&A activity, signaling a concentration in larger transactions. Sector-wise, B2B and IT are gaining prominence, adapting swiftly to the changes brought about by the COVID-19 pandemic.
  • Regional Dynamics: Regional variations in M&A activity are apparent, with North America and Europe experiencing declines, while Asia presents a potential bright spot. The report delves into the unique factors influencing each region, highlighting unexpected pockets of activity in the Netherlands and the challenges faced by the UK market.
  • Private Equity Resilience and Take-Privates: The private equity market, heavily reliant on leverage, has witnessed a significant impact from rising interest rates. Equity-heavy deals are becoming more pre-dominant, a departure from the decades-long trend of debt-heavy packages. Add-on activity is thriving as private equity firms focus on growing existing portfolio companies. Take-private transactions, though impacted, have seen a considerable uptick, were fueled by record-breaking fundraising and a surplus of available capital.

Expert Perspectives on Mergers & Acquisitions

The Q&A section of the Litera 2023 Year-end M&A Report features Frank Aquila, Senior M&A partner at Sullivan & Cromwell, who shares his insights on the current and future trends of the global M&A market.

Aquila predicts that M&A activity will recover in 2024, as the global economy achieves a "soft landing" of slower growth and lower inflation, and as dealmakers adjust to the higher cost of capital and the changing demands of customers and investors. He identifies several sectors that will likely see more M&A deals, such as pharmaceuticals, biotech, technology, energy, and consumer goods.

Aquila also notes that prospective buyers are exercising greater caution, with a renewed emphasis on rigorous due diligence, and highlights ten distinct areas of focus in M&A due diligence that are receiving heightened attention from buyers.

Last, the regulatory landscape is also evolving. Along with increased scrutiny from antitrust and foreign investment regulators in the US and globally, the time to prepare HSR notification filings has now substantially increased as a result of form and instruction revisions, and the Federal Trade Commission and the U.S. Department of Justice issued Draft Merger Guidelines setting forth an expanded scope of transactions that may be challenged by the agencies. Aquila also notes that new regulations, such as the EU Foreign Subsidies Regulation, could create additional hurdles for cross-border deals. In spite of that, dealmakers can still see success when they take on litigation risk and engage with regulators to address their concerns.

It is clear that the current M&A situation is new and uncertain, and the market and legal technology trends are ever-changing. For a more comprehensive understanding of the evolving M&A landscape, we invite you to download the full report.

These insights and more detailed analysis are available in the Litera 2023 Year-end Global M&A Activity Report, now available for download.

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