A photo depicting the Q1 M&A market
  • Q1 was a tough quarter for M&A, continuing a trend of softening sentiment thanks to high interest rates, supply chain challenges, and recession fears.
  • Globally, there were just under 6,000 deals, down about 30% from Q1. Total deal value was down 40% to $775 billion.
  • A rare bright spot was the Life Sciences sector, which saw an increase in total deal value, largely due to mega-mergers ranging from healthcare systems to Big Pharma.

There are a number of real headwinds facing markets, but several emerging trends could support economic activity moving forward.

Few analysts are buoyant about the M&A market following the first quarter of 2023. Q1 continued the trend seen throughout 2022, with M&A activity softening against macroeconomic headwinds and souring sentiment.

However, several sectors outperformed the broader market, such as Life Sciences and Energy. We also expect M&A to aggressively pick up as the economy digests the impact of transformative technologies that are just hitting the market.

Some notable deals in Q1 include:

  • Pfizer Inc's planned acquisition of cancer biotech Seagen: This $43 billion deal, announced in Q1 2023, allows Pfizer to expand its oncology treatment portfolio.
  • CVS Health plans to buy Oak Street Health, focused on senior primary care, for $10.6 billion. In March, CVS also acquired Signify Health, a home-based primary care provider, for $8 billion.
  • A Silver Lake-led consortium's acquired experience management software-maker Qualtrics International. This $12.5 billion deal marks a significant private equity investment into the tech sector.
  • UnitedHealth subsidiary Optum acquired LHC Group for $5.4 billion strengthening Optum's position in the health and hospice space.
  • The $3.2 billion sale of Credit Suisse Group AG to UBS Group AG is a sign of the times. As banks fail, expect more industry consolidation, often government-brokered.

Not All Regions Hit Equally

Though the US was far and away the biggest destination for M&A dollars at $290 billion, it’s taken a big hit since the glory days of 2021. Europe has suffered even more, due in large part to the outsized impact of Russia’s Ukraine invasion on inflation and economic sentiment. Asia has been more resilient, likely due to less aggressive monetary tightening and greater distance, financial and geographic, from the war in Ukraine.

Europe’s hottest M&A sector in Q1 shifted toward energy, mining and utilities, bucking a recent trend of technology and communications taking the top spot. The region is racing to shift energy supply toward renewables, as it grapples with reduced reliance on Russian fossil fuels. Renewable energy has taken center stage for the region, and the debate over whether nuclear energy should help decarbonize the region is heating up.

Regulatory Roadblocks, Banking Barriers

A major factor hurting M&A activity is a current stricter regulatory environment. Under the Biden Administration, the regulatory environment has become more comprehensive and ambitious than in previous years. This has slowed down some deals across multiple sectors.

Across industries, big companies seeking more market share are facing more regulatory hurdles than they did a couple of years ago. This is a significant factor to be considered when making M&A decisions.

Moreover, the current banking landscape presents another challenge for the M&A climate, particularly within innovative sectors like tech. Traditionally, smaller banks and venture capital firms have been crucial liquidity providers for these sectors. However, with some of these banks under stress or even facing bankruptcy, this liquidity could become harder to access, potentially putting a damper on M&A activity.

Technology, Energy, Life Sciences

In 2021 and 2022, TMT (Technology, Media and Telecoms) dominated the M&A space, accounting for a whopping $2.8 trillion of total deal value over that time. While it continues to maintain a robust presence, the past two quarters (Q4 ’22 and Q1 ’23) have seen a shift toward energy and biopharma.

Energy security is spurring aggressive investment, especially in Europe, to decarbonize and change to a safer energy mix.

While technology deals have softened relative to other sectors, it’s still one of the leading spaces. Artificial intelligence transforming virtually every industry will ensure that tech continues to dominate the space in the years to come.

As we discuss below, life sciences is seeing a boom driven both by new technological developments, as well as upcoming patent cliffs spurring Big Pharma to replace their aging IP.

Life Sciences: A Rare Bright Spot

In a tougher economic climate, the life sciences sector has emerged as a rare bright spot for M&A. Unlike many other sectors, life sciences saw a surge in deal value, driven largely by biotechnology, consolidating healthcare systems, and IP acquisitions by Big Pharma.

While the overall M&A volume saw a year-over-year decline of 23%, the life sciences sector bucked the trend with a whopping 42% increase in deal value, taking the total to $112 billion. Volume still fell, as fewer deals were offset by a larger average.

Big Pharma, facing looming patent expirations, has been on an acquisition spree, targeting smaller firms with promising pipelines. This strategy not only lessens the risks associated with in-house development, but also provides these larger companies with a parachute to soften their landing once their cash-cow patents expire. Pfizer's planned acquisition of SeaGen for $43 billion was one such deal in Q1.

Healthcare institutions have also contributed significantly to the sector's resilience, with broad consolidation occurring in response to tightening operating margins.

AI: The Future is Here

There’s something huge on the horizon, something that the market has yet to fully digest. That is just how powerful artificial intelligence will be in tomorrow’s economy. ChatGPT’s massive update late last year, and subsequent improvements, signaled that the era of intelligent computers is upon us.

There’s been a shot across the bow for all industries: The future is here. From healthcare to customer service to financial analysis to creative writing to graphic design, no industry is off limits.

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