Recession fears could trigger a ‘lipstick’ effect on deal activity next year

The quantity and dimension of mergers and acquisitions noticed a major lower this yr as macro headwinds weighed down the worldwide market.

For the primary time in over three years, there have been no mega offers valued over $10 billion through the third quarter, in response to the newest M&A report by Willis Towers Watson. There have been solely 49 giant offers valued over $1 billion through the quarter, as in contrast with 67 giant offers closed in the identical interval a yr in the past.

Regardless of world recession fears, geopolitical tensions and expectations for inflation and rates of interest to maintain rising in 2023, WTW predicts dealmaking exercise will proceed.

“An unprecedented variety of disruptive forces have created headwinds for dealmakers, however they’re additionally producing alternatives,” mentioned Massimo Borghello, head of human capital M&A consulting, Asia Pacific at WTW.

“The basics that drive dealmaking are nonetheless in place and, with valuations moderating after the historic ranges reached in 2021, strategic and monetary patrons alike will reap the benefits of better-priced alternatives for progress.”

Willis Towers Watson predicted recession fears might set off a “lipstick” impact subsequent yr, the place patrons more and more concentrate on smaller offers, fairly than big-ticket offers.

The difficult working surroundings will even drive firms to unload non-core belongings, WTW mentioned. For instance, power companies might proceed to divest carbon intensive belongings.

“This will create alternatives for patrons to increase product strains, companies or provide chains at a lowered charge,” the report mentioned.

The tech sector might see a wave of acquisitions within the AI and machine studying markets in 2023 with the necessity for velocity in digital transformation throughout all industries.

Persistent, pandemic-era provide chain disruptions might drive firms to look to M&A to spice up operational resilience.

WTW mentioned China’s dealmaking will more and more concentrate on home consolidation, forward of outbound ambitions. In Asia-Pacific, momentum from deal exercise in renewable power will circulation into subsequent yr, as environmental, social, and company governance continues to be a driver.

“As we transfer into 2023, financial uncertainty will proceed to outline and problem M&A exercise, however there will even be alternatives. In Asia Pacific, digital transformation, power transition and the method of adapting to geopolitical impacts will proceed to supply impetus for dealmaking, as strategic patrons search to grasp transformational progress,” mentioned Borghello.

Bioscience firms Novozymes and Chr. Hansen are set to merge in biggest-ever Danish deal by the fourth quarter of 2023.

This yr, Malaysia’s telco conglomerate Axiata Group Berhad, Telenor Asia and Malaysian telco supplier Digi accomplished a merger of telco operations to type Celcom Digi.