What should companies expect in merger and acquisition (M&A) activity in 2023? The short answer is ‒ it depends. Various fluctuating factors are at play: the blackening cloud of the recession, mounting distressed debt and geopolitical turmoil. While M&A deal activity has dipped from 2021 highs, it is generally comparable to pre-pandemic levels. However, from an industry perspective, the outlook for deal activity in 2023 may shine for some sectors while sunsetting for others. Here are some insights on what 2023 may hold and industries that may bring increased opportunity. 

Industries with Continued Momentum

According to Reuters, “Merger and acquisition (M&A) activity globally fell short of the high-water mark set last year as debt financing markets collapsed and stock market volatility decimated valuations, with dealmakers predicting a slow path to recovery in 2023.” While there were clear drops in overall deal volume across most industries in Q2 and Q3 for 2022, the software, REITs, commercial services and real estate industries saw strong deal-making volume in 2022 according to Bloomberg. In general, M&A activity is trending downward; however, two sectors stand out and can be expected to flow upstream in 2023. Let’s consider some insights on two of these industries, Technology and Healthcare and what to expect and why.

If M&A Is a Jungle, Technology Is the Tiger

Technology companies continue to increase their prominence in the M&A landscape. The expansion of technology companies was especially highlighted in the pandemic of COVID-19 where the demand for things like telehealth, robotics and digital services skyrocketed. As COVID-19 restrictions have eased and life returns to a new normal, what will drive technology M&A in 2023? According to Forbes, there are 600+ special purpose acquisition companies or SPACs. Their purpose of acquiring companies or businesses propels an upcoming surge in an industry like technology that is already on a pedestal for deal activity. In addition to AI and SPACs, there are other reasons for higher M&A activity in the technology sector. Tom Miles at Morgan Stanley says that “Corporates across all sectors—and especially in the industrial and consumer industries—will accelerate their digital transformations through M&A…” The fact that all sectors are seeking digitization for their operations and livelihood makes it likely that technology M&A activity will continue its hustle in 2023. 

Healthcare: A Continuum of Growth

The integration of digitization into multiple sectors has propped-up demand for technology – but it may bolster healthcare M&A activity into 2023 as well. A profound growth in healthcare M&A was seen during COVID-19 when the popularity of online pharmacies rose and attracted more investors to the digital healthcare and e-commerce arena. As COVID-19 limitations sunset, will healthcare continue its rise as a key player in M&A deals? Yes ‒ here’s why: According to the United Nation’s Department of Economic and Social Affairs, the world population is expected to reach 8.6 billion in 2030 and 9.8 billion in 2050. With the world population steadily increasing, upward demand for healthcare is expected. It is logical that healthcare companies will continue seeing heightened M&A activity to tend to the accompanying needs of a growing – and aging - population. In fact, healthcare companies may be targets of investment for technology companies and other sectors that are looking for synergistic operations – or growth – with the healthcare industry. 

An M&A Lighthouse 

While many sectors are expected to revert to pre-pandemic M&A activity levels in 2023, hope for increased M&A activity in certain pockets of the economy is not entirely lost. The constant mutability of technology and the ever-lasting demand for evolving healthcare will serve as a lighthouse in the continuing storm of inflation, debt and geopolitical chaos in 2023. Circumstances that are damaging to certain sectors are a window of opportunity for other sectors that capitalize on pressing societal issues ‒ and benefit from them. PKF Advisory recommends that companies in all sectors keep a strong pulse on the key variables that impact their industries and strategically time the market in determining their expansion and contraction strategies.

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David J. Nissen, CPA/ABV, CVA
Managing Director
PKF Advisory
dnissen@pkfadvisory.com