Foreign mergers and acquisitions (M&A) were more muted in 2022, after a record-breaking few years in the pandemic era, as tightening financial conditions and economic uncertainty made buyers and sellers more cautious in their approach to dealmaking.
Cross-border deals worth more than $1.57tn were agreed worldwide in 2022, down from an all-time high of $1.7tn a year earlier, according to private capital provider PitchBook. The total number of cross-border deals also declined by 11.4% to 9156, but was still above any other annual total tracked since records began in 2002.
Despite PitchBook’s M&A database tracking fewer deals in regions outside Europe and North America compared with other M&A data providers, it still reflects the declining trend in global dealmaking. Data provider Refinitiv has tracked around $3.56tn worth of global M&A deals that agreed in 2022, down from the record-setting total of $5.7tn during 2021.
The slowdown, which was sharpest during the second half of 2022, was the result of myriad factors, including steadily increasing interest rates, geopolitical turmoil and supply chain disruptions. These rate rises have come in the wake of soaring inflation and the war in Ukraine, which has undermined investor confidence.
In December 2022, the US Federal Reserve raised its federal funds rate to a target range of between 4.25% and 4.5%, which was 4.15 percentage points higher than a year earlier. Other major central banks across the globe, including in the UK and EU, have also hiked their main policy rates, which effectively increases the cost of M&A financing.
The number of cross-border deals struck in North America in 2022 was down by 21.3% from a year earlier, the highest of all global regions, followed by Oceania (–14.4%), Asia (–12.1%) and Europe (–8.6%).
This fall in global M&A has impacted major dealmakers. Goldman Sachs, the world’s most active M&A advisory firm according to Dealogic, reported in its annual results on January 17 that its investment banking fees in 2022 fell by 48% to $7.36bn, due to the decline in dealmaking activity.
“With ongoing market volatility and lower valuations, a lot of well-capitalised strategic and private equity investors are looking to pick up opportunities,” said Jinny Choi, a private equity analyst at PitchBook.
North American acquirers continue to dominate global M&A activity, accounting for almost a quarter of total cross-border deal value in 2022, according to PitchBook data. Ms Choi notes that the relative strength of the US dollar could also make M&A deals in foreign assets more appealing to US buyers in 2023.
“It creates a good opportunity for corporates with clear global growth strategies and strong balance sheets to continue investing abroad,” she added.
Experts expect that M&A deals for distressed assets in 2023 could counterbalance decreasing greenfield FDI figures. Nonetheless, investors will have to navigate government regulation and screening of foreign deals to acquire strategically important domestic assets.