Some of the largest U.S. companies have engaged in M&A activity over the past few months to drive growth. Just this week, Capital One announced its intent to acquire Discover, while the end of 2023 saw Microsoft complete its acquisition of Activision Blizzard. JetBlue is also currently appealing an SEC decision to block its acquisition of Spirit Airlines, a $3.8B deal. Yet these noteworthy deals are taking place in a market that has cooled down significantly globally.
Despite the cooldown, according to McKinsey’s latest M&A trends report, the U.S. market saw a 38% jump in the average deal size to $670 million per deal in 2023. For U.S.-based CFOs, this trend of fewer but larger deals underscores the resilience and strategic focus needed to pursue inorganic growth in an uncertain economy.
M&A Trends: Global vs U.S.
In what the report calls a "master class of volatility," the global M&A market has seen its challenges. 2021 saw global deal value surpass $5.9 trillion, but in 2023 it fell to just under $3.1 trillion in deal value. This level is the lowest amount since 2013, including at any point during 2020's pandemic economy.
For the U.S., the numbers trend similar to the global statistics, but without as significant of a variance. According to the report, U.S. deal value fell 7% to $1.6 trillion year over year in 2023, which only slightly trailed 2020's deal volume of $1.7 trillion. These figures suggest that the U.S. M&A market, despite being susceptible to global trends, is a bit more stable.
Much like the rest of the globe, the number of deals in the U.S. fell in 2023 too. Despite having more than half (11 of 20) of the world's largest deals last year, deal volume took a hit. In 2023, the U.S. saw 32% fewer transactions than a year before.
Despite a drop in transactions, the American market saw a strong Q4. The value of companies involved in the U.S.-based deals rose 39% in the final stretch of 2023, while the average deal size grew 47% in the same time frame.
Private Equity is Watching and Waiting
Private equity M&A market activity slowed in 2023, despite historically being a major player in deal-making across the board. They "fled to the sidelines" last year, according to surveyors, falling 37% across the globe, to roughly $560 billion in transactions. High capital costs, scarcity of deals, and economic uncertainty were likely all determining factors.
But the industry isn't out for good. McKinsey reports that, despite being only a part of 18% of all deals globally in 2023, firms are sitting on approximately $2 trillion in undeployed capital. If markets begin to look stable long-term, private equity's reemergence into the M&A space may be the jolt the industry needs to get back toward pre-pandemic numbers.
Private equity CFOs expressed concerns about job security last year amid economic uncertainty and deal slowdown. According to Accordion data from last year, these finance chiefs focused instead in part on technology enablement and cost reduction, possibly with the idea of putting themselves and their teams in a good position to put capital to work when the time comes.
Industries and Areas Involved
Broken down by industry, the global M&A market didn't change much. Although tech, media, and telecom lost the top spot to the energy and materials industry for the largest amount of transactions in 2023 when compared to the previous year, other industries saw little change. Consumer and retail saw a slight bump, while real estate saw a slight drop to the same tune of 2%.
There was also little year over year change on the proportion of deals done at home versus abroad. 2023 saw 72% of deals done inter-domestically. Cross-regional deals hit a five-year high of 17%. Cross-border deals, which were 12% of all transactions in 2023, tied 2019's figure, the highest in five years; but only beating 2022's number by 100 bps as well.