M&A Report
Executive Summary
- In 2023, the total M&A market dropped 15%, to $3.2 trillion, the lowest level in a decade.
- Strategic M&A declined 6% as buyers and sellers struggled to close the gap on valuations, and strategic deal multiples were the lowest they've been in a decade.
- Deals were delayed for other reasons, including high interest rates, mixed macroeconomic signals, regulatory scrutiny, and geopolitical risks.
- Many longtime frequent acquirers used 2023 as an opportunity to expand their competitive advantage through M&A.
This article is part of Bain's 2024 M&A Report.
It’s no secret that the M&A market declined in 2023 as the valuation gap between what buyers wanted to spend and what sellers wanted to charge for their companies kept many would-be deals from happening. M&A practitioners told us that the valuation gap was the biggest obstacle to dealmaking, and there were other headwinds in 2023 as well, including high interest rates, macroeconomic uncertainty, rising regulatory scrutiny, and new political pressures.
But while down overall by 6% in value, the strategic M&A market reflected uneven performance. For example, tech deals cratered while activity in healthcare and life sciences as well as energy and natural resources rebounded. The Americas market held steady as Europe and Asia faltered. Scratch beneath the placid surface, and you see how, across industries and around the world, winning companies turned to deals to reinvent their future, whether it was automakers acquiring to secure supplies for the transition to electric vehicles, insurers buying to expand their traditional role of risk protection to risk prevention, or media companies learning that partnering with former fierce competitors is the only way to win as their industry enters a new era.
The companies that made such moves will be those that emerge as leaders. Perhaps the most important M&A news from 2023, however, was the widening of the performance gap between frequent acquirers and their inactive peers. According to our long-term research, frequent acquirers always outperform in total shareholder return. In 2023, that margin continued to grow.
What the numbers say
The world of strategic M&A still saw more than 27,000 deals announced, totaling about $2.4 trillion, a 6% decline in value from the year before (see Figure 1). If those numbers seem better than what you may have read in the newspapers, keep in mind that the broader world of leveraged private equity and venture capital deals had a much worse time (down 37% in value). Those businesses were more exposed to the rise of interest rates and issues of debt availability. In contrast, corporate buyers generally had stronger balance sheets with cash on hand to do deals.
Figure 1
Global M&A deal value was $3.2 trillion in 2023, down 15% year over year
Still, no dealmaker could avoid the impact of rising interest rates. Nearly every executive we spoke with and a full 95% of those we surveyed agreed that higher interest rates required them to adapt their approach to M&A in 2023. The No. 1 adjustment? Being more selective in which deals are being pursued, which was cited by two-thirds of respondents.
But the biggest obstacle was the gap between valuations, which contributed to the lowest year for strategic M&A in a decade and caused prices to plunge. The valuation gap was the only thing that surveyed buyers and sellers seemed to agree on. More than two-thirds of buyers told us that it negatively impacted M&A activity. On the other side of the table, at nearly the same rate, potential sellers cited more favorable deal valuations as a top factor in deciding when to bring their assets to market. In some ways, 2023 will be remembered as the year in which buyers and sellers waited for each other to blink.
Anecdotally, we heard from our investment banking friends that a notable number of deal processes were abandoned before bids were accepted this past year. Why was it particularly hard to close the valuation gap in 2023? Our research pointed out four causes.
- Again, rising interest rates played a major role. The big argument throughout 2023 was the shape of the interest rate curve in years to come. Buyers needed deals to deliver a margin of safety from higher-for-longer interest rates whereas sellers held back in hopes that rates would come back down.
- A second straight year of declining strategic deal valuations made dealmakers wary (see Figure 2). At 10.1 times, overall deal multiples were the lowest in 15 years, with room to fall further; most downturns find a trough between 9 times and 10 times. Amid declining valuations, buyers took a skeptical view of assets priced with pride while sellers saw little reason to give away value.
- Moreover, a healthy stock market in 2023 exacerbated the yawning gap between private and public market valuations. With stocks trading well, sellers and their shareholders preferred to hold on to assets rather than face dilution from selling at a depressed multiple.
- Finally, private equity exits were down 44% in value and 22% in volume. Besides cutting off a source of potentially attractive targets, deferred private equity exits meant that there were fewer marks for fair market value, further clouding price transparency.
Figure 2
Strategic deal multiples have plummeted for the second year in a row, even as public market valuations rebounded
Another factor behind fewer deals is increased scrutiny by regulators around the globe. The European Commission, the UK Competition and Markets Authority, and the US Department of Justice and Federal Trade Commission have eyed major mergers with skepticism, particularly tech and healthcare tie-ups. A total of $361 billion in deals have been challenged since 2022; most have closed, often with remedies. The dust has not yet settled on the evolving antitrust regulatory landscape as courts weigh in and new guidelines are proposed. National security concerns also remain a factor for sensitive sectors such as semiconductors or nuclear energy. In this environment, some deals may never get off the ground; others are more likely to be abandoned in the face of a challenge. We explore the impact of longer and more uncertain timelines in “Regulation and M&A: How Scrutiny Raises the Bar for Acquirers.”
Looking beneath the surface
Across industries, the collapse of tech M&A was the biggest drag on strategic M&A in 2023 (see Figure 3). Tech deal values declined by roughly 45% as median valuations, defined by enterprise value–to-EBITDA multiples, tumbled from 2021’s high of 25 times to 13 times last year. Emerson’s acquisition of National Instruments to expand automation capabilities and Cisco’s bid for Splunk for its cybersecurity capabilities point to the ongoing demand for high-quality (and profitable) tech assets. Yet, as we’ve explored elsewhere, a higher-for-longer interest rate environment changes the deal math for most tech deals predicated on growth over profitability (see Global M&A Report Midyear 2022 or M&A Midyear Report 2023: It Takes Two to Make a Market).
Figure 3
Healthcare and life sciences as well as energy and natural resources M&A rebounded in 2023 but not enough to offset declines in tech and manufacturing
At the same time, a healthy dose of big-ticket deals supported a strong M&A year for energy and healthcare, prompted by differing sector dynamics. On the back of rising commodity prices, scale deals in energy and natural resources led the pack, with two megadeals in oil and gas and three additional major tie-ups comprising a total of about $175 billion in deal value, according to Dealogic. Companies in healthcare and life sciences continued their pursuit of growth via scope deals as represented by AbbVie’s back-to-back deals for ImmunoGen and Cerevel Therapeutics in December and Merck’s earlier acquisition of Prometheus.
The year saw a common thread of vertical dealmaking. Companies navigating a shock to the profit pool, whether a shift from internal combustion engines to electric vehicles or the rise of the Internet as a distribution channel, have turned to M&A to transform. Automotive companies are doing deals, such as Stellantis’s investment in Lyten and Ford’s acquisition of Auto Motive Power, to secure access to critical charging technology and to invest in their own recharging grids. In media, the value chain has been redesigned through merging of content and distribution, leading to new strategies for partnerships and alliances.
Vertical M&A can also reflect adaptive strategies in the face of industry consolidation. In the US, healthcare payers are using M&A to build health delivery networks, as exemplified by CVS’s purchase of Oak Street Health this year.
Spin-offs remained an essential tool in portfolio transformation as well. For example, Danaher continued its reorientation toward life sciences via a $23 billion spin-off of its water business (Veralto) while acquiring Abcam and its protein consumables business for $5.7 billion. Sanofi joined other healthcare companies in announcing the separation of its consumer health business. Spin-offs are exceedingly hard to get right, but top-quartile performers show how valuable they can be (see “When a Spin-Off Wins Big”).
Notably, cross-border dealmaking was sustained as investors sought to enhance portfolios in more favorable markets. US buyers pursued more cross-border deals, up 34% in value, while domestic value rose 2%. Similarly, Brazil remained attractive to foreign investment, even as domestic dealmaking declined (see “M&A in Brazil: International Buyers Act While Domestic Acquirers Show Caution”). Asia saw a 60% increase in deals from the Middle East as sovereign wealth funds sought to build supply chains and facilitate energy transitions.
And megadeals made a mark in the second half of 2023, a possible signal that dealmakers were ready to look forward. For M&A observers, the timing wasn’t too surprising. Many companies had sustained high levels of proactive deal screening and outside-in due diligence even as deal counts fell. Some deals, such as Chevron-Hess, were yearslong in the making if opportunistic in timing. Others, such as Carrier’s acquisition of Viessmann Climate Solutions, reflected a bet on long-term trends.
Finally, the year 2023 showed us a widening of the gap between how frequent acquirers and their inactive peers behave in M&A downcycles. You have heard us say more than once that frequent acquirers outperform throughout all economic cycles and tend to stay in the market through good times and bad (see “M&A in Times of Turbulence: Lessons from the Last Recession”). When we look back to the Covid-19 period, for example, we see that most frequent acquirers never stopped doing deals even as the market overall contracted. The same held true with the current market drop that began with the introduction of higher interest rates in June 2022 (see Figure 4). Most frequent acquirers kept acquiring.
Figure 4
Frequent acquirers stayed in the game throughout recent times of turbulence
Perhaps counterintuitively, today’s down market signals a longer-term fundamental shift: Those frequent acquirers that stay active are pulling away from less acquisitive or inactive companies as measured by long-term total shareholder returns. Bain research shows that the benefits of frequency are only increasing over time. While others stay on the sidelines, it is companies that invest to acquire through cycles, deploying tested and tailored toolkits to transform their businesses, that ultimately emerge as the winners.
Kudos to frequent acquirers that stay in the game through thick and thin.
In the following chapter, we discuss how the 2023 M&A market dynamic has created a growing backlog of deals that await any sign that buyers and sellers can come to terms.
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Methodology (click to expand)
State of the market, industry, and regional M&A data
Deal details and aggregate statistics (such as value, volume, and multiples) were sourced primarily from Dealogic’s M&A database for this annual report. Data in most industry and regional articles includes the time period from January 1 to September 31, 2023. Forecasts for fourth quarter 2023 were conducted on a straight-line basis using first-quarter through third-quarter data unless an exception is noted. Full-year 2023 data was updated as of January 2024.
This report concentrates on strategic M&A, encompassing deals by corporate buyers (including sponsor exits) and private equity add-on acquisitions. Both types share fundamentally strategic objectives. Financial sponsors, special purpose acquisition companies, and venture capital fall under the nonstrategic category. Combined, these categories constitute Dealogic's total M&A market. All deal values represent either the disclosed value at the time of announcement (including debt for deals that have not closed) or the disclosed value at close for accurate assessment and representation of deal prices. The region and industry of each deal is classified according to the target’s region and industry unless an exception is noted.
Scale vs. scope
The M&A report signifies scale and scope deals in our chapters’ analyses to discern trends. Assessing deals through these lenses offers crucial insights into M&A market theses and themes.
To understand the nature of M&A activity, we first identified the top strategic deals for each year. From the initial list of deals with values greater than $1 billion, as reported by Dealogic, we excluded nonstrategic deals. These include asset or property acquisitions, financial investments, internal reorganizations, and minority stake acquisitions. This resulted in a total of 2,218 deals for the period between first quarter 2015 and third quarter 2023.
We then classified the strategic deals into scale or scope deals based on our proprietary database criteria applied consistently across the years. The proprietary criteria use the stated strategic rationale by the acquirer at the time of announcement to identify the key elements of the deal thesis. Based on these elements, the deals were categorized as scale or scope deals.
Scale deals are intended to strengthen market leadership and lower cost position through benefits of scale, such as cost synergies. Scope deals are intended to accelerate top-line growth by entering or expanding into faster-growing market segments, or by bringing in new capabilities (see Exhibit A).
Exhibit AAbout the methodology
The M&A Practitioners’ 2024 Outlook Survey
In partnership with the Gerson Lehrman Group, AlphaSights, and IncQuery, we conducted a survey of 306 M&A practitioners. The survey ran in October 2023 in the US, Canada, Brazil, UK, Germany, France, Japan, India, and Australia. Survey participants held senior executive roles with titles such as vice president, senior vice president/executive vice president, director, C-suite, or owner at companies with greater than $100 million in annual revenue that closed an M&A deal within the past three years, and they were responsible for M&A decision-making processes at their company.
Regulation database of major deals
Bain has created a proprietary database of major deals that received scrutiny by the US Federal Trade Commission (FTC), US Department of Justice (DOJ), UK Competition and Markets Authority, or European Commission. For the purposes of this report, the database includes 42 deals announced between 2022 and 2023. Scrutiny is defined as an official second request, investigation, or litigation by a regulatory body. Deal status was last updated on December 18, 2023. This information allowed us to analyze the effects of regulatory challenges on the M&A deal timeline. For some analysis, deals announced during the prior six-month period were excluded to account for pending timelines.
Our database also includes merger enforcement actions from the FTC and DOJ. This includes 204 merger cases in which a complaint was filed in federal court or the FTC's internal administrative court from January 1, 2015, through December 15, 2023. This allowed us to analyze historic changes in challenge timelines for scrutinized US deals. Deal status was last updated on December 15, 2023, with this date used as the resolution date for any deals pending at the time of analysis.
