CLS Blue Sky Blog

Cleary Gottlieb Discusses M&A in 2023

Consensus opinion coming into 2022 was that high M&A volume would continue, albeit not quite at the record-setting pace of 2021. The market had other plans. Volume decreased much more sharply from the 2021 high than was commonly expected. While overall deal volume was generally in line with averages from 2017-2020, 2022 was a tale of two halves—there was a marked drop from H1 to H2, with Q4 representing the lowest Q4 global deal volume in the past six years.[1] Significant stock market volatility wrought havoc on valuations. Higher interest rates and a retreat by large banks from the leveraged loan market chilled leveraged buyout financing. Macroeconomic and geopolitical uncertainty turned confidence to caution. Valuation disconnects scuttled deals as sellers continued to expect 2021 multiples. Regulatory scrutiny made execution more complex. Entering 2023, many of these headwinds continue.

Yet, 2022 was still a strong year for dealmaking. And opportunities still abound.

With several significant macroeconomic variables in the balance, there is less consensus on the outlook for 2023. Will this year be in line with five year averages? Is there room for rebound from there or will we see significant further drop off? Only time will tell, but we expect forecasts to vary by sector, with outlook as a whole significantly affected by how quickly inflation stabilizes and the timing and depth of potential recessions in the U.S., EU and China.

Furthermore, the structural drivers that fueled a record 2021 and buoyed M&A last year remain largely intact. The disruptions induced or accelerated by COVID-19 and its aftermath will continue to drive consolidation in a number of industries. Cash-rich corporates continue to look for opportunities to position themselves strategically for the long term. And although the fundraising environment is facing additional headwinds, private equity buyers who spent more time tending to their portfolios in 2022 will look to deploy their still substantial dry powder opportunistically as valuations reset. The onset of a recessionary environment will provide acquirors with strong balance sheets or capital to deploy with even more fertile ground for deal-making.

Our sense from boards, senior management teams, private equity professionals and other dealmakers is that M&A is very much on this year’s agenda. What follows are some key themes we expect may play out in 2023, as well as some lessons from 2022 that they should bear in mind.

Muddy Waters, Many Fish. Amidst the stream of murky macroeconomic events, we expect dealmakers to wield an expanded toolkit to catch passing opportunities.

Antitrust the Process. As we predicted at this time last year, the recent trend of increased scrutiny of transactions from competition regulators, particularly in the U.S. and Europe, continued in 2022. But in the U.S., substantial shifts in announced antitrust policy and bold public statements from antitrust enforcers have not yet been matched by a surge in actual enforcement, and the agencies suffered unprecedented setbacks in court. For further discussion of these antitrust developments, see 2023 Update: U.S. Antitrust Sets Sail Into Uncharted Seas. Despite the fact U.S. enforcement statistics have not quite matched the rhetoric to date, merger review in 2023 will continue to create complexities in transaction planning and execution. Deals raising horizontal or vertical issues will continue to get done, but will require thoughtful planning.

“Fool me once, shame on you…” Between the COVID broken deal cases and the drama to emerge from last year’s market dislocations, sellers have now had two vividly recent opportunities to consider the importance of conditionality and deal remedies when a buyer finds remorse. We may not be through the turbulence yet, so they are advised to give careful consideration to deal protections in negotiations this year.


[1]  Data taken from Bloomberg.

This post comes to us from Cleary Gottlieb Steen & Hamilton LLP. It is based on the firm’s memorandum, “M&A in 2023: A Year of Cautious Optimism?” dated January 17, 2023, and available here. 

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