Global M&A loses steam but powers on

Introduction

In the first quarter of 2023, the global M&A markets presented a mixed picture, with both positive and negative factors affecting deal activity. On the one hand, deal activity exceeded expectations, despite the current challenging geopolitical and macroeconomic conditions. This optimistic view holds that dealmakers performed well, given the circumstances.

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On the other hand, pessimists point to significant year-on-year declines and the increasing complexity of economic and regulatory factors in the US, making it more difficult for dealmakers to close transactions. However, regardless of these differing perspectives, the year began slowly after global M&A markets lost momentum in 2022.

 

According to Mergermarket, there were only 5,974 deals in the first quarter of 2023, representing a 29% year-on-year decline and the lowest quarterly total since the third quarter of 2020. Nevertheless, it's worth noting that this figure is still higher than any quarter on record pre-2020. The pandemic and the subsequent fiscal and monetary stimulus policies disrupted market activity and distorted comparisons with previous years.

 

It's also worth remembering that 2021 and 2022 were unprecedented years for M&A activity, breaking numerous records. In contrast, the first quarter of 2023 has seen the aggregate global M&A value decline steeply by 40% year-on-year, falling to US$646.3 billion. This figure represents the lowest quarterly total since the pandemic's onset and falls below any quarterly total recorded since the first quarter of 2016. These statistics indicate that the global M&A markets are facing challenges, and dealmakers must navigate a complex environment to close successful transactions.

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Key Deals

The tough financing conditions in today's market have highlighted the value of cash, and Pfizer's acquisition of Seagen for US$43 billion in March illustrates this point. The deal was the largest of Q1 2023 and the most significant acquisition in the biotech sector since AbbVie's takeover of Allergan in 2019. Merck had been eyeing Seagen in the summer of 2022, but negotiations faltered when both parties failed to reach an agreement on the price. Pfizer, on the other hand, had ample cash on its balance sheet due to the highly profitable sales of its COVID-19 vaccine, which it utilized to supplement the US$31 billion in new long-term debt used to finance the deal.

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The second- and third-largest deals announced in Q1 were in the mining and technology sectors. US gold mining company Newmont made a US$19.5 billion offer for Australian peer Newcrest Mining, while a private equity firm, Japan Industrial Partners, led a group that acquired Toshiba, a Tokyo-based conglomerate, for US$15.2 billion.

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Newmont's acquisition of Newcrest Mining is a significant move in the mining industry, combining two of the largest gold producers globally. The deal reflects the sector's trend towards consolidation, driven by rising demand and higher gold prices. Similarly, the acquisition of Toshiba by Japan Industrial Partners signals a shift in the technology sector towards private equity ownership. The deal also indicates a move towards Japanese firms pursuing more significant deals, following a prolonged period of corporate retrenchment.

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Overall, these top deals of Q1 2023 illustrate the market's changing dynamics, characterized by tough financing conditions, the consolidation trend in the mining sector, and private equity's growing involvement in the technology sector.

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Regulatory Considerations

During the analyst and investor call where Pfizer announced its acquisition of Seagen, there were concerns raised regarding the level of regulatory scrutiny that the deal would face due to its size. It was noted that the reverse termination fee, which was set at approximately 5% of the total deal value and above the standard 3% break fee, indicated that Pfizer was aware of the antitrust concerns surrounding the deal.

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In the US, dealmakers are eagerly waiting for an update on the new merger guidelines being jointly developed by the Department of Justice Antitrust Division (DOJ) and the Federal Trade Commission (FTC). These guidelines have been highly anticipated since a public consultation period was announced in January 2022, and the lack of clarity around them has contributed to the current market uncertainty.

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The M&A volume in the US fell by 10% to 8,468 deals in 2022, while the value dropped by 38% to US$1.6 trillion, lagging behind the global average. However, in the first quarter of 2023, the number of deals increased to 1,816, with a total value of US$290.6 billion, which represented a year-on-year decline of 31% and 42%, respectively.

 

Notably, the number of mergers that sought US antitrust approval dropped significantly in March, and this is speculated to be due to the lack of regulatory clarity. According to preliminary FTC figures, US antitrust authorities received only 122 Hart-Scott-Rodino (HSR) filings that month, which is the lowest monthly filing figure in over eight years, excluding the period following the onset of the pandemic in 2020.

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