US Deals 2023 midyear outlook

Confidence amid uncertainty

Proactive dealmakers are finding value creation opportunities in a fluid business environment. Dealmakers are favoring smaller deals, with deal volume relatively strong compared to pre-COVID periods. While only about a third of deals have a reported value, disclosed deal value is hovering around pre-pandemic levels. Economic uncertainty and regulatory scrutiny have helped dampen big deals and a weak IPO market is helping to create opportunities for buyers with strong balance sheets.

Corporates continue to have an advantage due to their ability to use equity and cash, and inherent levers for synergies and capabilities. Corporate margins, while under pressure, are still above historical norms and equity market returns are positive year-to-date through June 8, 2023. Divestitures are also expected to increase as companies focus on their portfolio, capital and funding.

Companies with the financial flexibility to do deals can transform their organizations by moving closer to customers, leaving challenged sectors and speeding up digital transformation.

A combination of acquisitions and divestitures can add complementary capabilities that help make companies more innovative and resilient. Savvy leaders are allocating more planning time and resources to M&A integration, increasing the odds of success as companies “transact to transform” to gain an edge on more deliberate competitors.

We see four primary drivers influencing M&A activity:

  • Capital allocation: With high interest rates, inflationary pressures and near-term economic uncertainty, companies will need to be more purposeful in how they allocate capital to deals.
  • Opportunity amid uncertainty: Despite economic volatility, geopolitical turmoil and other pressures, smart dealmakers will be able to find opportunities to reshape their businesses in line with long-term strategic priorities.
  • Necessity for business reinvention: Technological advances, demographic shifts (including smaller workforces) and geopolitical upheavals are evolving business models to meet shifting customer demands. Companies that strategically manage their portfolios are at an advantage in this dynamic business environment. Strategic, well-executed integration is the key to a transaction actually transforming a parent company.
  • Resilience and innovation for growth and sustainability: As businesses tackle long-term challenges, from climate change to technological transformation, they will seek deals that boost resilience and sustain growth.

Transact to Transform: PwC’s 2023 M&A Integration Survey

Companies have begun to crack the code on how to make integration successful: leveraging experience, early and sustained investment in integration, and a commitment to creating and implementing new long-term operating models.

However, successful M&A organizations — defined as reporting significant success across strategic, operational and financial measures — are rare. Only 14% of survey respondents in our recent M&A integration survey indicated this elusive level of success.

Under the right circumstances, M&A offers a blend of opportunity and challenges. But it requires companies to concentrate on a disciplined, proven approach to integration and ultimately, transformation.

The bottom line

Strategic leaders are finding M&A opportunities that can make critical changes to their business. They’re divesting business units that do not fit and redeploying capital and management bandwidth to new opportunities in line with shifting customer preferences, technology opportunities and demographic changes.

Savvy acquirers start to think very early — during or before deal screening — about what a new operating model might look like. And they’re devoting more resources to integration, earlier and consistently, to maximize the return on those acquisitions.

Finally, corporate leaders are looking beyond today’s economic conditions to position their companies for the next expansion. They are screening opportunities to help them grow the markets and businesses they want to be in over the next decade to give them the best chances to achieve long-term value creation.

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