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2023 M&A Outlook

There was great speculation that the decreased valuations of 2022 would lead to a surge in M&A activity; however, activity this year has been much lower than anticipated. A multitude of factors have slowed down M&A this year – inflation, unrest abroad, and rising interest rates are just a few of the issues that have negatively impacted transactions over the past few months. 

Everyone is left to wonder what the M&A forecast for 2023 will look like. Will we see an uptick in activity, or will we continue to see a much more cautious approach from buyers and targets? There are many predictions for the new year, which vary widely. Below, we round up a few that are making headlines.

A Return to Normal

Many analysts are predicting we could see a return to pre-2021 activity. It is important to remember that 2021 was a blockbuster year for M&A with a historic number of transactions. That kind of activity is challenging to duplicate and exceed year after year. At some point, it will inevitably slow down. So, we might be experiencing a return to a more normalized activity level as we move into 2023.

There Could Be a Spike in Some Areas

One area where there could be a spike in 2023 is mergers among private tech companies. In an interview with The Information, Goldman Sachs bankers told the outlet that consolidation among private tech firms could pick up next year. This could be particularly true for those startups who had to alter their IPO plans. These companies are likely exploring alternative exit strategies, and decreased valuations will make mergers in this space more attractive.

There is also some speculation that the fintech industry could see higher levels in 2023. This has been an area that has seen steep drops in valuations and a roller coaster of a year. These factors could make it a prime area for mergers and large transactions.

Interest Rates vs. Dry Powder

Borrowing money is considerably more expensive due to multiple spikes in interest rates. Gone are the days of virtually free money. We have yet to determine what the Fed has in store for the remainder of this year or next, but we know they will likely come down sometime soon. That means that it will continue to be expensive to borrow moving forward.

While the higher cost of taking on debt does make acquisitions more challenging, remember that private equity firms have an unprecedented amount of dry powder in their reserves. They will be looking to use that dry powder as valuations remain low. The combination of these two factors has the potential to bolster activity next year.

Due Diligence Will Continue to Be a High Priority

One thing that is a sure bet is that due diligence will continue to be a higher priority for buyers as they look more closely than ever into their targets. It is more important than ever for buyers to take an even deeper dive into every aspect of targets, ensuring everything is 100% in order. This means targets will need to be prepared on their end, with financials and operations ready to face greater scrutiny. 

No one can predict the future, and there will be new factors that no one can foresee popping up in 2023. We will monitor and update as the new year unfolds.

© 2023 Foley & Lardner LLPNational Law Review, Volume XII, Number 339
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About this Author

 Louis Lehot Private Equity Attorney Foley and Lardner Law Firm
Partner

Louis Lehot is a partner and business lawyer with Foley & Lardner LLP, based in the firm’s Silicon Valley, San Francisco and Los Angeles offices, where he is a member of the Private Equity & Venture Capital, M&A and Transactions Practices as well as the Technology, Health Care, Life Sciences and Energy Industry Teams. Louis focuses his practice on advising entrepreneurs and their management teams, investors and financial advisors at all stages of growth, from garage to global. Louis especially enjoys being able to help his clients achieve hyper-growth, go public and to...

650.251.1222
 Brandee L. Diamond Attorney Foley  & Lardner LLP
Partner

Brandee Diamond is a partner with Foley & Lardner LLP, based in the firm’s San Francisco office and also working in the Silicon Valley office where she is a member of the Transactions Practice.

...
415-438-6401
Eric Chow Senior Counsel Foley & Lardner LLP
Senior Counsel

Eric Chow is a senior counsel and business lawyer with Foley & Lardner LLP, based in the firm’s Silicon Valley office, where he is a member of the Transactions Practice.

Prior to joining Foley, Eric gained experience working with public and private mergers and acquisitions, investments, joint ventures, as well as other corporate transactions, with a focus on the Northern California market, across a wide variety of industries including technology, pharmaceuticals, medical devices and real estate. Eric’s work also includes cross-border mergers...

650-251-1120
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