Cross-border M&A activity in 2023 was impacted by heightened geopolitical conflicts, high inflation and interest rates, and increased regulatory pressures as the global economy remained clouded by looming recession fears. Deal financing became more difficult and expensive, placing more emphasis on alternative funding and value creation. In such an environment, global M&A activity experienced a 17% drop in value from the previous year, plummeting to $2.9 trillion – representing a 10-year low. That figure also falls considerably short of pre-pandemic levels, with deal values hitting $4.11 trillion and $4.09 trillion in 2018 and 2019, respectively[1]. Although the aggregate global M&A deal value dropped significantly in 2023, the number of deals consummated only decreased by 6% compared to 2022. Dealmakers leaned into the fact that smaller deals are generally cheaper, as they require less financing and are subject to fewer regulatory hurdles, in each case, if any.
In this post, we explore key trends that influenced the cross-border M&A landscape in 2023, and how we expect these trends to shape and drive the M&A dealmaking environment in 2024.
1. Geopolitical climate materially influenced dealmaking
The geopolitical climate of 2023 presented a challenging backdrop for cross-border M&A activity, with many buyers and lenders taking a more risk-averse position. Ongoing and renewed armed conflict and climate and energy risks had far-reaching impacts, not only affecting national security, global stability and public debate, but also dampening investor sentiment and generally quieting dealmaking in the aggregate.
Against this backdrop, 2024 will be the biggest election year in global history, with more than 60 countries (including the US and the UK) going to the polls for presidential, legislative and local elections. Given the inherent uncertainty of the democratic electoral process, parties may seek to secure deals and lock in value before facing potential regime changes that impact fiscal and regulatory policies relevant to cross-border M&A transactions.
2. Interest rates hikes dampened activity
For much of the past 24 months, global central banks raised interest rates in response to rising inflation, initially caused by higher goods and energy prices, as well as bottlenecks in global supply chains. This was done with a degree of synchronicity not seen in decades. The rate hikes were aimed at making borrowing more expensive to try to bring down the pace of price increases. The aggressive rate hikes contributed to the decline in M&A activity in 2023.
The higher interest rates escalated borrowing expenses, making mega-deals (deals valued at $5 billion or more) significantly more expensive, due to their heavy reliance on debt financing, and impacted valuation multiples with higher discount rates. In Europe, the discount factors remained particularly high, as inflation was more resistant to drop, compared to the US. This relative unattractiveness for dealmaking in Europe resulted in the proportion of non-European acquirers participating in European cross-border M&A transactions dropping from 12.55% in 2021 to 9.25% in 2023.[2]
For 2024, many market observers are hopefully forecasting interest rate cuts by the end of the year. However, the Bank of England has indicated interest rates may remain at the current level for some time, with no cuts for the foreseeable future, and the US Federal Reserve is only beginning to think about the timing for potential rate cuts. Despite the general optimism that interest rates will not be increased further, until there is greater clarity with respect to when monetary policies around the world will be relaxed, expect cross-border dealmakers to cautiously approach deals requiring debt.
3. Regulatory scrutiny a more significant factor in deal timelines
Dealmakers continued to face heightened scrutiny from antitrust agencies and other regulatory bodies worldwide in 2023. Despite the increased regulatory attention, which extended deal timelines for deals caught in the crosshairs, thereby increasing execution costs, cross-border deals were nonetheless consummated throughout the year. In one of the most high-profile examples of this increased scrutiny, the US Federal Trade Commission (FTC) attempted to block Horizon Therapeutics’ $29.3 billion sale to Amgen; however, the parties eventually settled the matter on the eve of trial.
The UK Competition and Markets Authority (CMA) and the European Commission (EC) continued to thoroughly scrutinize cross-border deals, with mixed results for dealmakers. For example, while the $7.3 billion tie-up between Inmarsat and Viasat was cleared by both regulators, Adobe’s $20 billion proposed acquisition of Figma was abandoned in December 2023 following regulatory pressure. The EC also continued to make use of a tool allowing it to review deals of substantive interest, even where the thresholds for automatic jurisdiction were not met (so-called Article 22 referrals), commencing reviews of the transactions between Qualcomm and Autotalks and European Energy Exchange and Nasdaq Power in the second half of the year. 2023 also saw the imposition of the largest ever “gun-jumping” penalty, with the EC fining Illumina and GRAIL approximately 432 million euros and 1,000 euros, respectively, for implementing their proposed merger before it was approved by the EC, marking the first time the EC imposed a penalty on a target company.
Following the standard set by the Committee on Foreign Investment in the United States (CFIUS), governments around the world have continued to enact and expand foreign direct investment (FDI) screening regimes to regulate deals and investments with national security implications and involving national assets or in critical industries. There remain significant differences between jurisdictions, with notable discrepancies between timelines, sectoral coverage and notification requirements, which dealmakers had to navigate in 2023. Further reforms are likely ahead for 2024.
The year also was highlighted by President Joe Biden’s issuance of an executive order (EO) on August 9, 2023, marking the first official step in the long-awaited “reverse CFIUS” process, which would regulate certain outbound investments by US persons in China and in Chinese-owned companies. The EO was effective immediately, but the supporting regulations have not yet been issued. The European Union has become active in this space too and is expected to publish its own proposal in the coming months, while the UK started a review process of its national security screening regime in late 2023, which included seeking views on outbound investment controls.
Finally, the EU Foreign Subsidies Regulation became fully effective in 2023 creating a new regulatory regime meant to “level the playing field” with respect to unfair advantages that non-EU government subsidies may cause in the context of M&A. The regime establishes mandatory pre-closing filing obligations on parties meeting certain thresholds that have received financial contributions from non-EU governments exceeding certain levels.
Dealmakers can expect the heightened level of regulatory scrutiny and prolonged review periods seen in 2023 to continue to play an important role in cross-border transactions throughout 2024. Acquirers must be prepared for potential litigation domestically and internationally, and for more detailed negotiations over regulatory and interim operating covenants. In addition, acquirers’ appetite for mega-deals may continue to be more suppressed, and acquirers may pivot to smaller M&A opportunities. Nonetheless, we expect smaller value, less headline-grabbing deals to continue to close on expected timelines and, given the wave of impeding elections, we would be surprised if there were a material uptick in the adoption of new regulatory measures in 2024 that could be viewed as “anti-business.”
4. Momentum in life sciences and proliferation of artificial intelligence (AI)
The life sciences industry vertical accounted for 13% of all deal value in 2023, upping its share by 8% from the prior year, with the Horizon/Amgen deal being one of the most notable cross-border transactions of the year. Out of the Nordic countries, companies such as Novo Nordisk capitalized on massive revenue boosts from weight-loss medications (Wegovy and Ozempic) with multibillion-dollar acquisitions. In addition, cross-border life science reverse mergers saw increased momentum in 2023, as we previously noted in our “Life Sciences Reverse Mergers Go Global: Is It the Path for Your Company?” blog post.
We expect cross-border M&A activity in the life sciences vertical to continue at pace throughout 2024, considering the inherent funding pressures in the sector – along with big pharma’s impending patent cliffs and the public markets’ continued volatility – driving dealmaking at a global scale. We take a deep dive into the life sciences M&A market in our “2023 Life Sciences M&A Year in Review” blog post.
Deal momentum in the AI space was one of the main talking points for cross-border dealmaking in 2023, with some estimates projecting the overall market size will reach $407 billion by 2027. We expect AI-driven deals to continue to take center stage in 2024, not only with respect to driving M&A activity because of the number of new players in the space, but also in streamlining business operations and automating various tasks associated with the transaction process. The expansive debate regarding the trajectory of AI will remain a key focus in 2024 and beyond as governments worldwide are called to regulate this new frontier.[3]
5. Record dry powder on the sidelines
Private equity (PE) activity experienced a slowdown in 2023, decreasing 30% year over year from 2022, and only made up 20% of all deals this year, primarily as a result of the tight macroeconomic conditions impacting investments, exits and fundraising. This period of relative inactivity put pressure on PE sponsors to return capital to their limited partners and, in the face of these challenges, funds began resetting value-creation plans and working to get things moving again through the emergence of new exit strategies, such as secondaries and continuation funds. In addition, take-private transactions were consummated at a near-record pace, as many high-quality public companies traded at discount prices throughout the year.
As we move into 2024, the PE industry is under pressure to kick-start activity, given the record amount of unspent investor cash ($2.59 trillion) and an unprecedented stockpile of exit deals in the pipeline. As a result, we expect PE activity to be particularly robust throughout the year, driving cross-border dealmaking in the process.
6. Portfolio reevaluations led to renewed focus on core businesses
A dominant trend throughout 2023 was the widespread adoption of corporate restructurings and separations, such as carve outs, asset sales and spinoff transactions. The pervasive market volatility compelled many companies to re-evaluate their portfolios under the 2023 market conditions, leading to a surge in divestiture activities. Carve outs, particularly in the form of tax-efficient spinoffs and taxable sales of noncore assets, held steady throughout 2023. These transactions served as effective tools to generate liquidity through asset sales, streamline operations and channel investments toward high-potential assets.
We anticipate this trend to persist in 2024, as larger companies around the world undertake comprehensive reviews of their businesses and product portfolios, identifying and divesting assets that no longer align with their long-term strategic goals. Cash-rich buyers, including PE, should be poised to take advantage of this trend we expect to see across a variety of jurisdictions.
7. Uncertainty bred activist shareholders
The ongoing instability in public market equity valuations, particularly for high-growth companies and those that thrived during the pandemic, fueled a surge in activist investor activity globally. Activists did not hesitate to target foreign private issuers listed in the US, announcing 62 campaigns in 2023, as compared to 42 campaigns and 15 campaigns in 2022 and 2021, respectively.
In particular, activists did not hesitate to target UK companies in 2023, launching 18 campaigns and accounting for 44% of all activist campaigns conducted in Europe, a 7% increase as compared to H1 2022. Of those campaigns, 44% had an M&A thesis, with an increase in “bumpitrage” – a practice of openly rejecting approaches in order to drive up the value of the bid. In addition, another 44% of such activist campaigns included proposals for management and board changes, which could become increasingly prevalent as investors seek to replace directors they perceive as ill-equipped to navigate the post-pandemic business landscape.[4]
Looking ahead, as deal activity picks up pace in 2024, we expect to see activists steadily demanding strategic reviews, as well as “sell-the-company” and “scuttle-the-deal” campaigns, to gain greater traction in parallel.
[1] Dealogic
[2] PitchBook 2023 Annual Global M&A report
[3] See, for example, the EU AI Act of June 2023 and the US AI executive order of October 2023.
[4] Deal Point Data (targets over $500 million market cap); FactSet; Activist Insight
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