(Finance) – 2023 will be characterized by more “strategic” M&A activity, focused on the acquisition of distinctive skills in the medium term, both by industrial investors and funds, with a concentration of deals in the second half of the year . The market will watch closely the monetary policies of central banks regarding interest rates to catch signs of greater stability. M&A activities will also have a strong financial focus, linked to the issue of profitability and the ability to generate cash flow in the short to medium term by the targets. Above all, endogenous synergies will be evaluated with greater interest on synergies related to cost optimization, rather than on expansion into new markets. This is what emerges from PwC M&A Trends 2023 report.
From the 26th PwC’s Annual Global CEO Survey, conducted on 4,400 CEOs worldwide, it emerges that 60% of those interviewed do not intend to slow down M&A activity in 2023, despite over 70% of the sample having expressed doubts about the economic recovery in the current scenario of uncertainty and volatility. M&A activity is seen by CEOs as a vehicle for growth and acceleration of their company’s digital, ESG and business model transformation, as confirmed by the number of deals and the high multiples of the Technology sector. According to PwC, the M&A transactions, especially large-scale and transformational in nature, however, they will become increasingly complex. The scenario of geopolitical uncertainty, fears of recession, the increased cost of debt and the evolution of exchange rates have increased the prudence of boards, investment committees and lenders towards high multiple, leveraged and synergy operations limited achievable in the medium to long term. M&A activity will therefore require an increasingly strategic and creative approach.
The PwC report records a decline in M&A deals globally in 2022, both by volume (-17% vs 2021) and by value (-37% vs 2021). EMEA region more resilient, with 20,000 transactions recorded in 2022 (+17% vs 2019 pre-pandemic). L’Italy goes against the trend: volumes (+2% vs. 2021, with 1,500 deals) and value (+41%) of M&As announced in 2022 are growing thanks to the Blackstone / Atlantia takeover bid. Industrial Manufacturing & Automotive (+18% in volumes vs 2021) e Consumer markets (+71% in value vs 2021) are the best performing sectors in Italy. THE Private Equity Funds are increasingly at the center of M&A: they have gone from almost 1/3 to over 40% of the total deal value of transactions globally in the last 5 years, with 2.4 trillion dollars of liquidity to invest. The key issues for M&A activity are: cash flow and profitability, sensitivity on inflationary and currency scenarios, ESG and data analytics, focus on synergies and post-deal.
“The current market context – he explains Emanuela Pettenò, deals market leader & consumer markets leader PwC Italia – favors operations led by strategic investors, with strong balance sheets and adequate liquidity, which can benefit from less competition from private equity funds on large, more difficult to finance operations, from a normalization of multiples and from the possibility of grounding concrete operational synergies. From private equity funds we expect a creative approach in the construction and financing of large-scale deals, greater interest in medium-sized deals and openness to IPOs as exits. The current course of the dollar will continue to favor cross-border investments by American funds and corporates in European companies, especially Italian ones”.
“Portfolio optimization and strategic corporate transactions will drive M&A in the first 6 months of 2023 in Italy and Europe. In the second half – he comments Nicola Anzivino, EMEA deals clients & markets leader and Global IM&A Deals leader PwC – we expect a normalization of market conditions with also the restart of IPO operations in our market and the continental one. The industrial sector especially the middle market will continue to be active in Italy and in Europe, we expect M&A linked to the acquisition of technical and technological skills by the operators of our country to increase their weight in sectors with high added value. Transactions of an extraordinary nature will increasingly have a transformative weight in the corporate business model where the post-deal execution will play a decisive factor in capturing above all endogenous synergies”.
PwC searches have identified in the human capital the key element for growth, with direct impact on business performance. Recruiting, motivating and retaining staff has become critical in a talent shortage scenario, which is why investors are increasingly paying attention to HR policies and initiatives when analyzing potential targets.
The due diligence activities they will have to be more sophisticated, envisage various scenarios of inflation, growth (or even recession), exchange rate trends and sensitivity analyzes to test the stability of the forecasts even in very different contexts and give investors greater confidence. PwC experts also see a growing penetration of ESG due diligence and, linked to the greater availability of data, a greater use of data analytics tools to carry out financially sophisticated analyzes in a very short time.
The post-deal activity will become increasingly important in 2023 in order to speed up the take control of the acquired companies in order to exploit the available talents, exploit the technical and technological skills acquired, and maximize the return of the above all endogenous synergies envisaged in the acquisition phase.
(Photo: © macgyverhh/123RF)