Recap of 2023: Deal Making Hits a Multi-Decade Trough
After the M&A frenzy in 2021 and early 2022, transaction volume began to decline in the back half of 2022 and continued to fall throughout 2023, hindered by rising interest rates, fears of recession and a pullback in global ad spend on an inflation-adjusted basis. Through the end of 2023, deal count fell nearly 30% and total transaction value declined an astonishing 80% relative to 2022. Private equity-backed platforms drove a substantial portion of activity through bite-size add-ons, often relying on management reinvestment, earn-outs and seller notes to bridge financing gaps caused by a tepid and expensive credit market.
Outlook for 2024: A Slow But Steady Return to Normal
While the recovery for M&A markets has been slower than expected, the fundamental drivers of activity remain intact. In the private equity community, dry powder has reached near record amounts, placing pressure on investors to deploy capital. At the same time, distributions from private equity firms to their limited partners have remained low in recent years, creating a backlog of demand for exits, debt dividends and other liquidity events. Strategic acquirors are also likely to return to the table after a painful 2023 caused many firms to pause M&A while they rightsized their cost structures to address slowing growth and rising rates. From a thematic perspective, the hunt for generative AI tools is likely to define the year, while upcoming major elections around the world are poised to drive unprecedented global advertising spend.
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