After the record-breaking year in 2021, the global M&A market has returned to pre-2020 levels of activity during 2022. Geopolitical pressures such as the war in Ukraine, inflationary pressure, rising interest rates, the aftermath of Covid-19 lockdowns especially in China, and the risk of a future economic slowdown have brought the amount of mid-market transactions down to levels seen before the Covid-19 pandemic.
M&A dealmakers however remain optimistic about their future prospects. According to a survey made by Intralinks almost two-thirds of M&A dealmakers expect their deal volumes to increase in 2023, despite the challenging year of 2022. It seems unlikely that the global M&A deal flow will grind to a halt rather than simply seeking a new level of normal after the recent challenges that have emerged in the current economic environment.
Are valuations going down?
Due to rising interest rates, the overall availability of financing for deals has somewhat decreased. Valuations have also significantly lowered from the record year of 2021, especially in the technology sector. Depending on their future outlook this may present lucrative opportunities for buyers, as if the current economic factors such as high inflation show signs of slowing down, this can lead into healthy returns on good purchases.
According to a survey conducted by Firmex, the price gap between prices asked by sellers and prices offered by buyers has widened recently. In some cases, earnouts are becoming more common as a method of bridging this gap in prices. Time to close deals has increased somewhat as buyers conduct more thorough due diligence checks during economically uncertain times.
PEs play a major role in Tech M&A market
While corporate dealmakers have been worried about the slowing global economy, private equity investors have shown high levels of activity and still have significant amounts of dry powder to look for opportunities. Purchases by companies that are owned by private equity have also been increasing.
Tech M&A market is still relatively strong
The technology, media, and telecommunications sector remained dominant in the global M&A activity, accounting for approximately 25% of deal volume and deal value. The sector has cooled down since its record-breaking activity in 2021, and valuations in the sector have lowered across the board. Private Equity involvement in the sector’s deals has also significantly increased over the past years according to an analysis done by PwC. As of 2022, 52% of deals made in the sector had Private equity involvement either as a direct buyer or an indirect buyer or seller through a portfolio company, up from 38% in 2018.
Within the technology sector, software remains the largest subsector. Software deals accounted for over two-thirds of the global technology sector’s M&A deals, and although deal volumes and values have slowed down since 2021, both are still at above pre-pandemic levels.
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PriceWaterhouseCoopers – Global M&A Trends in Technology, Media and Telecommunications: 2023 Outlook, 30.01.2023
Firmex – Deal Flow Bulletin Q4 2022
Refinitiv Deals Intelligence – Global M&A Mid-Market Financial Advisory Review – Full Year 2022
BDO – Horizons – BDO’s global view of mid-market deal activity. Issue 4 – 2022.
Intralinks – 2023 Global M&A Dealmakers Sentiment Report
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