As the world grappled with a complex set of challenges in Q2 2023, the global Mergers & Acquisitions (M&A) landscape underwent a profound transformation. Notably, the deal activity across sectors experienced a significant decline, amounting to USD 747 Bn, as compared to the remarkable USD 1.15 Tn recorded in Q2 2022. The Technology sector, too, was impacted, which witnessed a sharp decline to USD 91 Bn compared to the strong USD 273 Bn observed in Q2 2022. However, amidst this downturn, the Technology sector demonstrated resilience by spearheading the highest number of deals, both in value and volume.
During the first half of 2023 (H1 2023), the M&A activity experienced sluggishness due to a confluence of factors including inflation, geopolitical conflicts, a stringent regulatory environment, and apprehensions within the Banking sector. The challenges were further compounded by high interest rates and an investment conundrum. Nevertheless, investors are navigating these challenges with caution, indicating the potential emergence of a revitalized deal environment.
There were glimmers of hope In Q2 2023, despite these headwinds, as the M&A landscape witnessed a promising 12% surge in deal volume compared to the previous quarter, and an impressive 22% increase in deal value. Key strategic areas such as Data Engineering, Digital Experience, Cloud, Artificial Intelligence/Machine Learning, and Consulting emerged as significant themes during this resurgence period. However, the decline in mega deals in H1 2023 had a substantial impact on overall deal values. Looking ahead to H2 2023, amidst global uncertainties and liquidity constraints, the outlook for mega deals is evolving. Nonetheless, there remains a strong demand for high-quality assets in the growth stage, with a low burn model.
Private Equity (PE) firms sitting on substantial dry powder, and enterprises seeking to acquire ‘growth’ in the current dynamic market environment, will play pivotal roles in driving the Mergers & Acquisitions (M&A) activity forward. However, the criteria for investments are evolving, as growth alone will not be sufficient to make them attractive assets. Companies, grappling with margin pressures, will prioritize profitability while evaluating potential assets, introducing an additional layer of complexity to the M&A landscape.
The M&A resurgence ahead will be marked by discerning investors seeking quality assets. While growth remains a priority, sustainability and profitability will hold equal importance, emphasizing prudent investment decisions. Consequently, competition for quality assets will intensify, as players across the board seek to seize opportunities in this transformed marketplace. As we stand at the crossroads of opportunity and uncertainty, the shifting landscape presents numerous prospects for those navigating change with a cautious yet proactive approach.
In this quarterly update, Zinnov’s M&A Advisory team explores key data points and Mergers & Acquisitions (M&A) trends across the Technology & Services space, shedding light on –