Global Trends in Mergers and Acquisitions (M&A) in 2023

General Trends in Mergers and Acquisitions: Decrease in mega-deals, focus on medium-sized transactions that drive strategic transformation and accelerate growth..

Mergers and Acquisitions: Transformation Opportunities in an Active and Dynamic Market

The year 2023 has brought about various changes since its inception.

Slowdown in inflation,
Possible end to the interest rate escalation
Decline of some banks, increased possibility of a financial crisis,
Overcoming the debt ceiling crisis in the US, and
The highly talked-about technological revolution: Generative AI.
Rise of digitalization and decarbonization, as well as
Increased emphasis on value creation creación de valor,

are creating a favorable environment for the emergence of transformational opportunities and optimal conditions in the mergers and acquisitions (M&A) market in the coming months.

Trends

In the short term, mergers and acquisitions activity is expected to be characterized by medium-sized transactions, rather than large-scale deals that have declined since reaching their historical peak in 2021. These smaller-scale transactions can also drive transformation and growth for companies.

While corporate groups with greater liquidity will continue to have a favorable position for carrying out larger operations, the next few months are projected to be dominated by transactions in the middle market segment. This is due to strategic purchases and selective divestments that CEOs undertake to transform their portfolios of investments for the future.

The year 2023 began with moderate expectations for mergers and acquisitions due to fears of a possible recession and rising interest rates resulting from coordinated efforts by central banks to control inflation levels in various parts of the world. However, the first half of this year has been challenging in terms of transactional activity, with an 8% decrease in the volume of operations compared to the already low levels recorded in the second half of 2022. Despite this, the number of transactions remains above the pre-pandemic levels of 2019.

It is likely that the flow of operations will increase in the second half of the year, especially if sellers focus on preparing for the sale and adjust their price expectations. However, many buyers are facing difficulties due to the increased cost of financing, leading them to seek alternative sources of capital and explore ways to create value through transactions.

Value creation, a fundamental strategic position for the coming years

Value creation has always been fundamental in any transaction, but it is now necessary to go beyond and identify other often transformative elements that contribute to achieving the maximum potential of each operation.

We observe investors focusing on strategic repositioning, portfolio optimization, digitalization, and changes in business models. However, other aspects such as energy efficiency, green tax credits, and sustainable financing also deserve notable attention.

Transformation and disruption go hand in hand in today's business world.

New technologies are facilitating decision-making and helping CEOs digitize and transform their companies. Artificial Intelligence has raised the bar even further, making a significant impact on companies and the economy as a whole. This creates opportunities in the mergers and acquisitions market for both corporate groups and private equity funds, which invest in new businesses or divest to monetize their investments. Strategic acquisition has become a common strategy to tackle the challenge of a shortage of professionals with the right skills. In this regard, Artificial Intelligence represents a qualitative leap, given that talent in this field is one of the scarcest resources.

Transformations are also taking place in other areas. Companies are increasingly committed to reducing their environmental impact and are pursuing strategies for net-zero emissions. The energy transition is generating significant changes in various sectors, thus opening up opportunities for mergers and acquisitions. For example, industrial and automotive component manufacturers are acquiring natural resource companies to ensure the supply of essential materials for battery production and energy storage systems.

In such a changing world, CEOs must be bold in envisioning the possibilities offered by the mergers and acquisitions market and position themselves ahead of their competitors. However, this boldness does not have to be limited to large-scale operations. M&A transactions can transform business models in various ways. The review of investment portfolios will be a crucial aspect for both large companies and private equity funds, as they seek smaller operations within their transformation processes.

«El mercado de fusiones y adquisiciones es más resiliente de lo que sugieren los principales indicadores de actividad. Nos encontramos en un mercado favorable para los compradores, especialmente para los grupos corporativos con liquidez y el segmento de middle market. Por lo tanto, es esencial que los vendedores estén preparados, ya que de lo contrario corren el riesgo de perder oportunidades.»

These smaller-scale transactions are more viable in the current regulatory and financing environment and can be transformative if part of a well-planned strategy. Corporate groups with greater liquidity are better positioned to carry out large operations and achieve greater transformational capacity while balancing the regulatory impact they face.

The decline in the value of publicly traded companies can also generate investment opportunities for private equity funds. Additionally, an increase in corporate restructuring is expected, which could result in mergers and acquisitions of struggling companies. However, being prepared is crucial before engaging in any selling process.