Mergers and acquisitions (M&A) will remain a key strategy for companies globally to expand markets and value chains amid increasing turbulence, according to a new report.
The 5th annual "Global Mergers & Acquisitions" report by Bain & Company found global M&A value dropped 36% last year, attributed to interest rate hikes and macroeconomic uncertainty, which stalled the market in the second half. In Asia-Pacific, the value of deals was slightly below pre-pandemic levels, dropping 22% from 2021 to US$3.8 trillion last year.
The M&A outlook for 2023 is brighter as executives are looking forward to closing more deals this year despite economic uncertainties, said Bain, a US-based management consulting firm.
Executives remain confident that an M&A strategy can create value, as they are encouraged by more attractive asset availability and lower competition, according to the report, which surveyed 300 M&A executives worldwide in October last year.
"Assets are cheaper than they have been in years, and opportunities exist to strengthen core business or create strategic options via scope deals," noted the report.
"Based on what we know from past economic down cycles, we anticipate ample opportunity in 2023 for well-prepared acquirers to make bold, strategic moves," said Les Baird, head of Bain's Global M&A and Divestitures practice.
For example, executives in India are not planning to pause M&A because they are positive the M&A trend will continue its forward momentum, with 75% of them expecting more attractive assets to be available this year, the report noted.
Last year India bucked the global trend as strategic M&A deal volume and value reached a record high, scoring the third-largest number of deals globally, representing a 139% rise.
China, on the other hand, was in line with the global trend, as the value of deals fell 30% from 2021.
In Japan, the value of M&A fell by 20% in the first nine months, although the volume remained ay the same level as 2021 with an increase in small deals. This year Japanese companies are expected to be hesitant to make larger deals in an uncertain macroeconomic environment.
Potential acquirers may hold off due to high multiples and yen depreciation, the report noted.
Healthcare and science, energy and natural resources, as well as environmental, social and corporate governance (ESG) are among the industries that would see growth in M&A this year, according to Bain.
The long-term underlying drivers of M&A in healthcare remain strong. Pharma companies could lead a rebound in M&A activity, filling the potential growth gap from the $100 billion in patents expiring by 2030, said the report.
Acquisitions to advance the energy transition are also growing, now representing 27% of all deals in energy and natural resources, up from 21% in 2021.
ESG-driven acquisitions are recording an increasing number of industrial players looking to accelerate broader environmental and social initiatives, despite a decline in the value and volume in diversified industrial M&A last year.