We probably don’t have to remind you what a challenging year 2022 has been caused by a myriad of factors: supply chain, inflation, Russia-Ukraine, and the list goes on. But dealmakers are wondering: will 2023 be any better or worse?

Reports show that overall M&A activity will likely remain challenged until uncertainty subsides. S&P Global’s Q3 2022 M&A and Equity Offerings Market Report details where M&A is likely headed. Q3 represented the third straight period in which the S&P fell and left the benchmark index down 25 percent through the first nine months of 2022.

Some of the key findings from the report indicate that for the first nine months of 2022, fundraising from global IPOs dropped nearly 70 percent and the total value of the U.S. M&A market has dropped for five straight quarters.

Breaking down Q3 by sector it is clear, that technology, media and telecommunications, real estate and healthcare led the charge in terms of aggregate transaction value and number of transactions. Additionally, industrial and consumer sectors saw a large number of deals, but at nearly half the aggregate value of the three aforementioned sectors.

However, when looking at the U.S. M&A activity since Q3 of 2020, it is evident that the market has faced the consequences of macroeconomic uncertainty. Since reaching the highs of 2021’s Q2 aggregate transaction value of $716.45 billion across 5,462 transactions, both the value and number of transactions each quarter have steadily decreased. Q3 of 2022 yielded just $241.22 billion in value across 4,135 deals.

With valuations depressed, inflation high and the cost of capital expected to continue to rise, any kind of quick rebound would not be expected, S&P says. However, the report notes that there still is some opportunity for dealmaking as higher interest rates can increase extra expenses for debt-laden firms, resulting in a possible distressed situation.

Difficult operating environments within uncertain economic times can also cause firms to sell off non-core businesses in an effort to strengthen balance sheets. S&P notes that firms with stronger balance sheets can find opportunities to pursue deals that can reduce competition and strengthen market positioning.

Cole Lipsky