Recession fears could trigger a ‘lipstick’ effect on deal activity next year

The quantity and dimension of mergers and acquisitions noticed a important lower this year as macro headwinds weighed down the worldwide market.

For the primary time in over three years, there have been no mega offers valued over $10 billion through the third quarter, in response to the newest M&A report by Willis Towers Watson. There have been solely 49 giant offers valued over $1 billion through the quarter, as in contrast with 67 giant offers closed in the identical interval a year in the past.

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Regardless of international recession fears, geopolitical tensions and expectations for inflation and rates of interest to maintain rising in 2023, WTW predicts dealmaking activity will proceed.

“An unprecedented number of disruptive forces have created headwinds for dealmakers, but they are also generating opportunities,” stated Massimo Borghello, head of human capital M&A consulting, Asia Pacific at WTW.

“The fundamentals that drive dealmaking are still in place and, with valuations moderating after the historic levels reached in 2021, strategic and financial buyers alike will take advantage of better-priced opportunities for growth.”

2023 outlook

Willis Towers Watson predicted recession fears could trigger a “lipstick” effect next year, where buyers increasingly focus on smaller deals, rather than big-ticket deals.

The challenging operating environment will also drive companies to sell off non-core assets, WTW said. For example, energy firms could continue to divest carbon intensive assets.

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“This can create opportunities for buyers to expand product lines, services or supply chains at a reduced rate,” the report said.

The tech sector could see a wave of acquisitions in the AI and machine learning markets in 2023 with the need for speed in digital transformation across all industries.

Persistent, pandemic-era supply chain disruptions could drive companies to look to M&A to boost operational resilience.

Asia-Pacific trends

WTW said China’s dealmaking will increasingly focus on domestic consolidation, ahead of outbound ambitions. In Asia-Pacific, momentum from deal activity in renewable energy will flow into next year, as environmental, social, and corporate governance continues to be a driver.

“As we move into 2023, economic uncertainty will continue to define and challenge M&A activity, but there will also be opportunities. In Asia Pacific, digital transformation, energy transition and the process of adapting to geopolitical impacts will continue to provide impetus for dealmaking, as strategic buyers seek to realise transformational growth,” said Borghello.

Bioscience companies Novozymes and Chr. Hansen are set to merge in biggest-ever Danish deal by the fourth quarter of 2023. [[should we move this up to above section?]] Sheila: works as the closing of the story but also OK to move this up where you deem fit

This year, Malaysia’s telco conglomerate Axiata Group Berhad, Telenor Asia and Malaysian telco provider Digi completed a merger of telco operations to form Celcom Digi.

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