Liat Anzel Aviel, PwC Israel (photo PR, Facebook/ PwC Israel)
According to a report by the global firm PwC, global mergers and acquisitions activity is expected to increase in the second half of 2023, as investors and managers seek to achieve long-term balance from a business and risk management perspective.
While global activity is still largely affected by macroeconomic fluctuations as well as the fear of a recession, interest rate increases, a steep drop in stock prices, geopolitical tensions that do not subside due to the ongoing war in Ukraine, as well as disruptions in supply chains – still 60% of CEOs in the world claim that they will not postpone the transactions planned in – 2023. Among the technology, state and media sectors, 64% of CEOs do not intend to reject deals in 2023.
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The global transaction data decreased both in volume and value from last year’s record, 2021, which was 65,000 transactions and this year stands at 54,452 transactions – a decrease of about 17%. This is still a high number of transactions compared to 2020 (50,441), 2019 (50,080) and 2018 (51,664). The amount of global transactions this year amounted to $3.3 trillion, while in 2021 the amount of transactions amounted to approximately $5.3 trillion – a decrease of approximately 37%.
In the second half of 2022, the number of transactions and the total amount decreased significantly. The number of transactions in the second half was 25,124 transactions, compared to 33,633 transactions in the second half of 2021 – a decrease of about 25%. The amount of transactions in the second half was about 1.34 trillion dollars, this compared to the amount in the second half of 2021 which was about 2.8 trillion dollars – a decrease of about 51%.
Private equity accounted for more than 40% of transaction values in 2022. A trend that changed the mergers and acquisitions market. Today, private equity funds (PE) will examine new deals with a focus on creating value in the company’s business portfolio, optimization, establishment and sale. Fundraising continues, the global capital stands at 2.4 billion dollars.
It is understood that the interest rate and inflation make it difficult and slow down the purchasing activity, but it is estimated that alternative ways will be found to finance important transactions. Self-disciplined companies will try to maintain their investment plans while maintaining sufficient flexibility to act quickly and seize opportunities while creating value.
Some of the largest private equity funds have raised credit funds, which opens up new ways of transactions for them in a complex financing market. The credit funds are expected to take significant shares from the banks that strive to limit their exposure to risky sectors. Loans from them may become the key to providing much-needed liquidity to the leveraged loan market.
SPACs have struggled to close deals this year. During 2022 there were 85 SPAC issuances that together raised about 12 billion dollars – a sharp decrease compared to 2021, when the number of SPAC issuances was 600 and raised more than 144 billion dollars.
Venture Capital (VC) – Investors withdraw from risky investments and reassess valuations. Hence it may generate interesting opportunities and acquisitions for corporate players and private investment funds. A potential sector is climate technology – in 2022, more than 25% of the funding of venture capital funds was directed to climate technologies, with a focus on technologies with the greatest potential for reducing emissions.
According to CPA Liat Anzel Aviel, “extreme changes in the macroeconomic environment in 2022 led to high uncertainty in the market. In the last transaction report we conducted in Israel, we saw that the number of transactions decreased by 40% and there was a minor increase of 5% in the financial volume due to a number of mega-transactions. In Israel too, we estimated that in the short term there will be a slowdown in the number of transactions. But in our estimation the M&A market will continue to show high levels of activity in the medium/long term given the large amount of capital remaining in the market combined with the expected decline in valuations.
“In addition, we have estimated that companies that will run into cash flow difficulties and are forced to be sold, may represent attractive opportunities, and therefore it may be that this will be the catalyst for a certain acceleration in the transaction market in the second half of 2023. Players who arrive prepared for the new market reality and will be able to take advantage of the situation will be able to benefit from bringing great value in the long term.”
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