Global M&A and PE activities in 2023 faced a substantial decline due to factors like rising interest rates, geopolitical conflicts, and economic concerns. Indian transactions saw a shift towards smaller, profitability-focused deals. However, the deal climate is expected to improve in 2024.
Global M&A and PE activities witnessed a slowdown during 2023, marked by a significant decline in both deal value and volume as compared to the previous year. This decline can be attributed to various factors such as rising interest rates, the Russia-Ukraine war, the Israel conflict, the failure of some of the large banks, and recession fears. The broader M&A market in India mirrored this global sentiment.
Note: Excludes $40 billion HDFC- HDFC bank merger transaction in H1 of 2022
Source: VCCEdge And BDO India Analysis
As depicted in the charts above, 2023 witnessed one of the worst years for M&A and PE. Following a peak in the first half of 2022, both M&A and PE deals experienced a sharp decline, starting in the third quarter of 2022, and it has been persistent throughout the year.
M&A and PE dropped by 57 per cent (excluding the mega $40 billion HDFC-HDFC Bank merger in 2022) and 48 per cent respectively in value terms during 2023. However, as may be seen from the chart below, the key decline occurred in mega deals ($100 million+ category). Non-mega (less than $100 million) M&A deals dropped by 29 per cent in value terms as compared to an overall decline of 57 per cent. This indicates that acquirers/ investors were hesitant to write large-ticket cheques.
Valuations, especially for new-age digital businesses, were significantly impacted. In 2023, Indian M&A and PE transactions were characterised by small-ticket deals. Unlike 2022 or 2021, where there was a significant dominance of digital/ new age tech-driven businesses, 2023 paved the way for increasing the share of deals in the industrial, chemical, healthcare, and similar types of businesses. There was a renewed focus on profitability and the path to profitability as against super growth with significant cash burn.
The challenging climate in 2023 was largely a result of global factors rather than country-specific reasons. However, the deal climate is expected to improve in 2024, especially after the general elections, driven by the following factors:
India is expected to continue to be the bright spot in the world economy in 2024. It is also expected that 2024 will witness robust M&A and PE markets, especially after the general elections.
-Authored by Samir Sheth, Partner And Head, Deal Advisory Services, BDO India