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Global M&A Insights: 2023 Half-Year Market Snapshots

FGS Global has been honored with multiple top rankings by Mergermarket for the first half of 2023. Mergermarket provides unique M&A information and analysis globally and has ranked FGS Global as the number one Global M&A PR firm by deal count, as well as number one in Europe by deal value. Following the announcement, we asked our experts globally to give an update on market conditions and trends in their regions, highlighting communications considerations for transaction success.

U.S. – Regulatory scrutiny, leak risk and varied deal drivers

The current regulatory and political climate remains an obstacle to completion for transactions of all sizes and sectors. The clear message to the markets and boards of directors is that the U.S. anti-trust enforcement approach is to “sue first, ask questions later.” Preparing and implementing regulatory and political strategies from the inception of announcement preparation must now be top-of-mind among companies and advisors. 

Another significant trend is that leak risk in M&A transactions has become increasingly pronounced due to two factors. First, a more challenging interest rate and deal financing environment further heightens potential leaks. As buyers discuss financing with a more fragmented set of prospective providers, including banks, hedge funds, private credit and other sources, word is more likely to spread into the market. Second, the M&A media environment in the U.S. has become more competitive than ever with reporters vying for the same “scoop”.

The drivers and types of deals remain varied. We are seeing take-private transactions and portfolio optimizations, often sparked, in part, by shareholder activist campaigns, which result in companies aggressively managing costs, divesting non-core assets and exploring strategic alternatives more broadly. While there are expectations that M&A activity will pick up in the second half of the year, the landscape remains uncertain due to interest rates, market conditions and stakeholder expectations. 

Continental Europe – Building interest from PE and international strategic bidders

While the overall deal flow in Continental Europe in the first half of 2023 was lower than the previous year, there are some notable developments.

Private equity investors have shown an increasing appetite for public-to-private transactions. One prominent example is the bidding war for Software AG, where Silver Lake ultimately triumphed over a competing unsolicited take-over attempt by another financial investor. Furthermore, the current political and regulatory environments in European countries have made investments attractive for foreign strategic buyers, as seen in Carrier Group's acquisition of Viessmann's climate solutions business.

For the second half of 2023, activists are expected to continue to pressure corporates to spin-off and divest non-core assets. Given the uncertainty in the current market environment and the increasing importance of the full range of stakeholders for the success of a transaction, a comprehensive communication approach is more crucial than ever before.

UK – An evolving market environment with increased regulatory and political scrutiny

The UK M&A market has seen tentative signs of recovering market sentiment over the last few months, but execution and completion risks remain at the forefront. Activity levels have been strongest among UK-listed midcaps and middle-market focused PE firms, with several notable public-to-private transactions. The changing composition of investment consortiums, with traditional private equity bidders increasingly partnering with international funds and sovereign-linked investors, has resulted in additional areas of media and stakeholder interest for transaction teams to manage. 

Technology – particularly software - and infrastructure have been among the most active sectors for transactions. However, concerns around the UK equity market’s ability to attract and retain technology companies and greater scrutiny of decisions taken by utilities’ regulators have created incremental areas of media and political focus for bidders to navigate. 

In addition, the increasingly robust approach to merger control taken by the UK’s Competition and Markets Authority, most notably on Microsoft / Activision Blizzard, continues under the new leadership of the agency, where less than 20% of Phase II merger reviews now result in unconditional clearance. The centrality of the CMA to deal execution has highlighted the criticality of aligning a deal’s communications strategy with the legal and economic case being made as part of any merger review.

Middle East – M&A activity stepping up

Recent M&A in the Middle East has been dominated by regional Sovereign Wealth Funds looking to deploy capital both regionally and internationally. Saudi Arabia’s Public Investment Fund continues to invest overseas and within the Kingdom, including high profile deals in sport, finance and tech.

Meanwhile, in the UAE, ADQ, one of Abu Dhabi’s sovereign wealth funds, announced plans to launch the region’s largest multi-asset class investment manager alongside General Atlantic and another Abu Dhabi listed entity, International Holding Company, demonstrating the trend for international alternative asset managers and private equity houses looking to invest in the region.

Similarly, we are seeing both local private companies looking to expand out from the region and global companies seeking to tap into the region’s growth opportunities via M&A. e&, a UAE-based global technology business, has built a 14% stake in Vodafone, whilst First Abu Dhabi Bank (FAB) apparently considered a bid for Standard Chartered. Conversely, Canadian asset manager Brookfield Asset Management led a consortium to acquire London-listed UAE-based payments company, Network International.

Asia ex-Japan – A nuanced picture dominated by opportunities and challenges in China

M&A in Asia-Pacific ex-Japan was US$340.6 billion in the first half of 2023, representing a 37.5% drop in deal value from 2022, broadly in line with the rest of the world. This was driven by declines in M&A activity in China, Australia and South Korea and marked the lowest first-half period the region has seen in a decade. The slower-than-anticipated rebound in China has continued to impact sentiment around dealmaking, however, M&A in Southeast Asia and private equity transactions should help lift activity in the second half of the year.

Geopolitical tensions have led to shifts in Chinese outbound investment away from Western Europe, Australia and North America and toward Southeast Asia and other emerging markets. Despite fundraising challenges, PE firms are sitting on $417 billion worth of capital in the region – the highest ever according to public sources.

Japan – A rare tone shift is driving interest and opportunities

Corporate Japan is on a high — in May, the Topix and the Nikkei 225 both hit levels not seen since 1989. This is being driven, in part, by new requirements from the Tokyo Stock Exchange for companies with a price to book ratio below 1x (currently over half of listed companies) to boost their corporate value.

We see a number of factors driving Japanese businesses to consider domestic and outbound M&A. We expect conglomerates to capitalize on record high equity prices to increasingly divest non-core businesses and better utilize their cash reserves by pursuing cross-border M&A. We have also seen a growing trend of divestments and M&A linked to pressure by foreign activists. Japanese companies can take advantage of on these moments of international attention by clearly articulating their credentials and setting out a clear investment thesis for a transaction to ensure stakeholder confidence.

Inbound investment is also benefiting from a number of tailwinds, including portfolio realignment following “de-risking” in Asia, and increased investor confidence that Japan’s interest rates will remain low supporting robust credit lines. For burgeoning investors in Japan, it is vital to set out a localised communications strategy that focuses on partnership and will meet the scrutiny of domestic stakeholders, including employees, counterparties, and authorities.