Business news

Turbulent outlook for M&A but strong evidence of resilience in multiple sectors

Posted By:
KPMG

24th Jan 2023

  • M&A leaders in Northern Ireland and the Republic of Ireland (RoI) are less confident about deal volumes than in previous years. A majority expect volumes to be stable or grow. However, 40% anticipate a decrease in deal volumes driven by market uncertainty.
  • 74% of respondents from across the island of Ireland say they will pursue M&A opportunities in 2023, with 72% believing it will be a buyers’ market. This has reversed recent trends and conditions which were considered seller favourable.
  • 91% expect to see a decrease in deal multiples following a period of record company valuations.
  • Rising interest rates are expected to drive M&A leaders to fund transactions from a reduced level of debt with 51% identifying availability/cost of financing as the primary obstacle facing deal activity in 2023.

24 January 2023: The outlook for M&A activity in Northern Ireland and RoI in 2023 is more uncertain than it was when heading into 2021 and 2022, as macroeconomic challenges have softened sentiment globally, according to KPMG’s annual M&A Outlook Survey. The survey reported that 16% of M&A leaders expect higher deal volumes in 2023, while 44% believe they will remain broadly stable, and 40% believe they will decrease.

The survey of over 150 of leading M&A executives from across the island of Ireland found the balance of power is expected to swing toward buyers this year as funding streams tighten. 72% of respondents anticipate that 2023 will be a buyers’ market bolstered by the expectation that deal multiples will soften.

Three-quarters still wish to pursue M&A opportunities

Following an extended period in which fierce competition drove deal multiples (valuations) to historic levels, respondents anticipate value rebasing in 2023.

However, in a positive outlook for deal activity, almost three-quarters (74%) of respondents intend to pursue M&A opportunities in 2023, as deal makers capitalise on inorganic growth opportunities. Investors are expected to act opportunistically with anticipated deal valuation declines in some sectors.

Tech remains attractive

M&A leaders expect the tech sector (38%) to be most active in 2023 as investors look to strengthen their existing offering and capitalise on lower valuations. Healthcare/pharmaceuticals (25%) and energy/infrastructure (11%) are also expected to be active in 2023.

59% believe that strategic buyers rather than financial buyers (41%) will drive M&A in 2023. With private equity sitting on significant dry powder, it is expected that financial buyers will continue to play a central role in 2023.

Interest rates and financing concerns causing a move away from debt

In a shift from prior years, respondents noted a propensity to fund a transaction from a reduced level of debt fuelled by recent interest rate hikes. Despite these external challenges, there continues to be support from traditional banks and non-bank lenders for island of Ireland M&A transactions.

Given rising interest rates and market uncertainty, 51% of M&A leaders identified availability/cost of financing as the primary obstacle facing deal activity in 2023. 39% cited the current inflationary environment as a concern, indicating that macroeconomic trends will be at the forefront of dealmakers’ minds in 2023.

ESG and IT/Operational due diligence on the rise

Traditional diligence workstreams, such as finance, tax, commercial and legal & regulatory continue to be seen as key to unlocking deal value. However M&A leaders also highlighted the growing importance of ESG and IT/operational diligence in 2023.

Commenting on the survey findings, Russell Smyth Head of Deal Advisory at KPMG in Northern Ireland, said: “After a buoyant period for dealmakers, macro concerns and a more constrained debt financing environment looks likely to pare activity in 2023.  Appetite however remains strong from private equity, with record levels of dry powder and corporates with strong balance sheets.  While investors are being more selective, we continue to see strong competition and pricing for targets with resilient business models and in select sectors such as energy and technology.”