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Confidence High in M&A’s Ability to Create Value Even as Deal Values Sink

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Bain & Company's fifth annual Global Mergers & Acquisitions Report revealed that corporate executives looking ahead to 2023 remained confident in M&A's role in value creation. Despite M&A value dropping dramatically in 2022, Bain's report confirmed that deal activity continues to be a central corporate strategy for growth and profitability.

The report, based on a survey of nearly 300 M&A executives and conducted by Bain in October 2022, revealed that respondents anticipated that 2023 will see a similar number of deals close, if not more. This confidence persisted despite research from Bloomberg that showed dealmakers worldwide suffered their worst January in 20 years, caused in part by high interest rates and other macroeconomic challenges that dampened mergers and acquisitions.

According to Bloomberg, global deal values were $123.6 billion at the end noted that this represented

Despite those sobering numbers, executives in Bain's research expressed confidence in dealmaking's ability to create value, reporting that nearly two-thirds of acquisitions completed in the previous three years have met or exceeded expectations.

Bain's research also found that strategic deal value declined more quickly than strategic deal volume. Median strategic deal multiples fell to a 10-year low of 11.9x in 2022, off an all-time high in 2021. The decline in deal multiples and a mid-year pause of mega-deals explains the relatively large drop in deal volume versus activity, Bain said. The largest drops were in the technology and healthcare and life sciences areas, according to Bain.

There is a silver lining to be found. Bain analyzed M&A activity of nearly 2,900 companies during the 2008-2009 downturn and found those active in M&A outperformed those that were not, as measured by shareholder return of M&A-active companies. Bain asserted that economic downturns are often an excellent opportunity for buyers to make bold moves, as assets are cheaper and there are greater opportunities to strengthen core businesses or create strategic options via scope deals.

"After five months of pre-pandemic levels of dealmaking, the market shifted in June 2022 and caused many to pause M&A," said Les Baird, head of Bain's global M&A and divestitures practice, in a statement about the research. "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. In our experience, we've found that in the face of uncertainty, proactive, deeper due diligence can deliver a competitive advantage in the speed and quality of deals done."

Bain's report identified five M&A trends to watch for in 2023:

  • Cash-rich companies making strategic, bold moves,
  • The continued prevalence of small to midsize deals,
  • A balance of scale and scope deals,
  • Further pressure on valuations,
  • Companies retooling their portfolios through divestitures and separations.

Bain's report explained how companies can use M&A to scale innovation, increase speed and quality with more proactive, deeper due diligence, and preserve value in integration by addressing cultural rifts. Some private equity firms are already signaling resilience; Blackstone, for instance, noted after publishing Q4 results that it has $187 billion of dry powder "to take advantage of compelling opportunities in a dislocated environment." And rival PE firm KKR said it will set up a new company to acquire businesses in the testing, inspection and certification sector.

Overall, the reports point to a rebound for M&A in 2023 and savvy executives should take full advantage of the opportunities for value creation that M&A can provide.

"Dealmakers are well versed in the cyclical nature of the M&A market. Amid a slowdown that impacts both the base business of acquirers and targets, we've seen time and time again that the companies that don't pause M&A during downturns, rather take advantage of opportunities to reshape their industries are the ones coming out on top," said Suzanne Kumar, Bain & Company global practice vice president for M&A and divestitures.