Dealmaking opportunities are now attractive enough to outweigh the threats and risks, a new industry report claims.
A new report by law firm Norton Rose Fulbright (NRF) surveyed over 200 senior executives from multinational corporates, private equity firms, and investment banks in Q1 2023 and revealed that 56 percent of them were “expressing a heightened appetite for M&A.”
That’s good news for a market that’s facing its biggest slump in over a decade. Global M&A deal volume plunged 48 percent to $575.1 billion in the first quarter of 2023, according to data from Dealogic. Interest rates, high inflation and fears of a recession were the biggest concerns for dealmakers. Some of these concerns may have moderated in recent months, while opportunities have become more attractive.
The tech sector emerged as the most attractive destination. According to the survey, 63 percent of dealmakers placed tech within their top three sectors expected to see the highest growth in M&A this year.
“Some sectors and some types of buyers are not impacted by the negative headwinds mentioned above and a good portion of the dealmakers would have this background and so are bullish about growth through M&A,” says Raj Karia, NRF’s head of corporate, M&A and securities.
NRF’s head of corporate, M&A and securities, Scarlet McNellie said lower valuations and less competition in auctions could be leading to the newfound appetite for deals.
Meanwhile, private equity investors have successfully improved their liquidity position despite the downturn. Estimates by Bain & Co. suggest that global PE firms are collectively sitting on $3.7 trillion in dry powder as of the first quarter of 2023. Nearly 6 in 10 surveyed said that the prevalence of dry powder was among their top three drivers of M&A activity in 2023.
Despite the rise in private credit, 78 percent of survey respondents said they relied on traditional bank loans to finance their deals. “Bank finance is the largest pool of capital available to fund M&A and its popularity is partly due to ease of access and general availability,” Karia says. “Despite higher financing costs, bank finance remains a competitive product.”
