M&A Activity Slows In 2023 Despite Exxon, Chevron Mega Deals: Brighter Prospects In 2024

Global mergers and acquisitions (M&A) activity fell to the worst levels in a decade in 2023, as high interest rates increased financing costs, while concerns over an economic slowdown weighed on deal-making confidence.

Total M&A volumes fell 18% from the previous year’s $3.6 trillion to around $3 trillion, according to data from Dealogic. This was the lowest volume of deal-making since 2013 when total volumes were at $2.8 trillion.

Despite the fall in volumes, some mega deals were announced in 2023, including two in the final quarter in the energy sector.

Exxon Mobil XOM agreed to acquire Pioneer PXD in an all share deal worth $59.5 billion, expected to close in the first half of 2024, while rival Chevron’s CVX $53 billion all-stock deal for Hess HES is scheduled for an early-2024 completion.

Also Read: ‘Magnificent 7’ Widens Gap With Rest Of S&P 500, But That May Change In 2024

Brighter Outlook For 2024

M&A experts and advisers anticipate a markedly improved 2024, contingent on a reduction in interest rates and assuming the economic downturn remains moderate. Market volatility is bad for deal-making due to the challenges in pricing when share values fluctuate significantly.

Global deals have been on a downtrend since a record-breaking year in 2021 when total M&A volumes hit $5.9 trillion, thanks to the easy-money policies of central banks during the pandemic. But many think M&A activity in 2024 will improve.

Brian Levy, global deals industries leader at PwC, said: “The M&A activity ahead may not all be eye-catching megadeals, which have ebbed since hitting their peak in 2021, but rather a healthier level of mid-market deals as companies pursue their strategic growth agendas.”

PwC expects enhanced activity in disruptive sectors such as artificial intelligence, where the most important deals will be for talent rather than resources and assets.

Private Equity Deals Slump

M&A volumes in the U.S. fell 8% to $1.4 trillion, while in Europe and Asia Pacific, volumes fell 32% and 20% respectively.

Once responsible for nearly a third of all M&A activity, volumes in private equity-led deals tumbled 38% to $433.6 billion as high interest rates, economic concerns and volatile markets in the first half of the year saw PE firms cut back on leveraged buyouts and conduct fewer asset sales.

Key factors that could impede an increase in deal-making in 2024 include the possibility of a severe economic slowdown. However, such a downturn could lead to lower stock valuations, thereby making acquisition targets more affordable for buyers with loaded war chests.

But after the rally seen in recent months, some stocks are looking fully valued, which could hinder M&A activity in the opening months of 2024.

Now Read: VIX Index At Three-Year Lows: Does Wall Street’s Fear Gauge Foresee A 2024 Stock Rally?

Photo: Shutterstock