According to a recently published report by Pitchbook, a database of private company transactions, during the third quarter of 2023, the global M&A market faced significant challenges, leading to a decade-low point in deal value. Extended interest rate uncertainty and limited access to debt deterred buyers, with the Federal Reserve's unexpected rate increase and geopolitical unrest exacerbating the situation. These factors delayed expectations for an M&A recovery, leaving the industry in a state of stagnation. Despite the decline in deal value, the number of deals only decreased by about 2.5% in 2023, indicating that transactions were still occurring, albeit on a smaller scale.
Financial sponsors, including venture capital and private equity firms, found it difficult to access debt, while corporate buyers relied on cash from operations and corporate bonds for financing. Consequently, the proportion of sponsor-backed deals in the market decreased compared to corporate M&A. Additionally, the median debt-to-enterprise value ratio dropped significantly, making debt a smaller portion of the capital used in leveraged buyouts. Higher interest rates also impacted lending for leveraged buyouts, limiting the amount banks were willing to lend.
Furthermore, the valuation landscape varied across industries. Energy companies benefited from higher commodity prices and confidence in stable crude oil prices, leading to increased valuations. In contrast, the financial services industry experienced a decline in valuation multiples due to high funding costs and challenges arising from banking crises and market uncertainties. Overall, the global M&A market faced a challenging environment, with the potential for recovery hinging on resolving the prevailing uncertainties and accessing adequate financing options.
Credit: www.cfaw.com
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