US Deals 2023 outlook

Successful dealmakers will find opportunities

While economic and geopolitical uncertainties have created headwinds, they’re also generating opportunities. A reset in valuations, the availability of capital and the increased competitiveness from corporates should provide openings for dealmakers in the year ahead. The strong US dollar will fuel outbound investment, tempered by the underlying weakness in foreign markets and compressed foreign earnings.

In 2022, M&A market activity continued to exceed historical norms while retreating from the new heights of the previous year. Once the final stats are tallied, 2022 will end up as one of the strongest years outside of 2021.

The need for speed in business transformation, which is accelerating thanks to technological advances and the evolving economy, will keep dealmaking front and center. Whether changing supply chains, adopting new go-to-market approaches or adding capabilities, the market is impatient. The fastest way to transform a business is through M&A, divestitures or other deals.

While doing deals, leaders must also keep a close eye on stakeholder trust — among customers, investors, regulators and business partners. PwC’s surveys of consumers and business executives on issues of trust reveal substantial gaps between what consumers say is important and what executives believe. Since trust — and distrust — can alter consumer behavior, protecting it must be a top priority to preserve value in dealmaking.

We’ve entered a period of changing economic and financial fundamentals. Interest rates, inflation and wages have all been rising. A number of macro factors, from trade wars to shooting wars, are driving economic uncertainty. This is not an unprecedented environment though. It’s a return to conditions we’ve navigated in the past.

Business leaders recognize the challenges. Some 90% of executives tell us in the November Pulse Survey they're concerned about macroeconomic conditions, and 81% expect a recession in the next few months.

Still, most business leaders also know they can’t cut their way to growth. And as we saw in the past five years, deals have been a key fuel to business resurgence and economic expansion. Executives say they are confident they’ll be able to hit near-term growth goals and execute on strategic transformational initiatives.

Over the next 12 to 18 months, 44% plan to hire talent with specific skill sets to drive growth. And a growing number of executives — 35% in PwC’s November Pulse Survey — say they’re planning an acquisition or divestiture over the same period. That’s up 10 percentage points from August 2021.

What will drive successful deals? Consider these factors:
  • Capital discipline, including the power of portfolio renewal and the value in divestitures
  • Navigating uncertainty
  • Speed to unlocking value from transformational deals
  • Increasing resilience and security

The power of portfolio renewal and the value in divestitures

The volume of acquisitions has been outpacing divestitures in recent years. Prior to 2017, S&P 500 companies divested two businesses for every seven they acquired, according to PwC analysis of Capital IQ data. From 2017 to 2021, they divested two businesses for every nine acquired, a better-than-10% decrease in divestiture frequency than the prior five-year average.

Strategic leaders recognize that divestitures can be an important source of value creation. A disciplined, strategic approach to divestitures can drive overall returns, even in a challenging environment.

We looked at divestitures over the past decade and found that the median company saw a 3.8% increase in its stock price above its peers around the announcement date, according to PwC analysis of Capital IQ data. The top quartile received a 10.4% stock price boost, and companies that had a positive impact at announcement sustained a 3.1% excess return above their industry peers.

A divestiture can eliminate management distractions from strategic imperatives. It can also be an important source of capital for acquisitions or transformative business initiatives — a key consideration with current financing costs and the capital discipline to deliver required returns.

Strategic portfolio reviews can help make divestiture decisions more objective and clear away emotional barriers and inertial factors. The discipline of persistently reviewing portfolios can improve outcomes and reduce the stigma often associated with them.

Timely divestiture decisions can improve performance in the current business environment. Evidence suggests that proactivity can increase the odds for delivering a positive return by five times. That means setting aside emotions, making objective assessments and then acting quickly.

PwC’s portfolio review and divestitures study demonstrates that moving faster and decisively on divestitures can create more value for shareholders. 

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Bottom line

Companies that have strategic discipline and conviction will be able to find and execute good deals that create shareholder value.

High performing companies conduct regular portfolio reviews to assess which business units are strategic and which are no longer a fit for the core strategy. This creates opportunities to divest and redeploy capital into transformative opportunities that create value through new technology, talent and ESG capabilities. It also allows management to shift focus in the direction dictated by corporate strategy.

This may create an opportunity for strategic buyers to acquire earlier-stage companies. Acquirers with capital will likely have opportunities to do deals from a position of strength while factoring the rising cost of capital into dealmaking.

Markets will not be patient. C-suite leaders should seek out transformative deals that can help their company leapfrog forward and quickly generate value for shareholders. Despite some headwinds, we believe there will be opportunities for savvy dealmakers in 2023 and beyond.

Contact us

Colin Wittmer

Colin Wittmer

Deals Leader, PwC US

John D. Potter

John D. Potter

Deals Clients & Markets Leader, PwC US

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