Recession fears could trigger a ‘lipstick’ effect on deal activity next year

In one of the biggest media mergers in history, AOL acquired Time Warner for $182 billion in 2000 to form $350 billion mega-corporation, AOL Time Warner

Erik Freeland | Corbis Historical | Getty Images

The volume and size of mergers and acquisitions saw a significant decrease this year as macro headwinds weighed down the global market.

For the first time in over three years, there were no mega deals valued over $10 billion during the third quarter, according to the latest M&A report by Willis Towers Watson. There were only 49 large deals valued over $1 billion during the quarter, as compared with 67 large deals closed in the same period a year ago.

related investing news

UBS expects this global tech stock to see a 60% upside despite headwinds and reopening challenges


Despite global recession fears, geopolitical tensions and expectations for inflation and interest rates to keep rising in 2023, WTW predicts dealmaking activity will continue.

“An unprecedented number of disruptive forces have created headwinds for dealmakers, but they are also generating opportunities,” said Massimo Borghello, head of human capital M&A consulting, Asia Pacific at WTW.

“The fundamentals that drive dealmaking are still in place and, with valuations moderating after the historic levels reached in 2021, strategic and financial buyers alike will take advantage of better-priced opportunities for growth.”

2023 outlook

Willis Towers Watson predicted recession fears could trigger a “lipstick” effect next year, where buyers increasingly focus on smaller deals, rather than big-ticket deals.

The challenging operating environment will also drive companies to sell off non-core assets, WTW said. For example, energy firms could continue to divest carbon intensive assets.

Read more about tech and crypto from CNBC Pro

“This can create opportunities for buyers to expand product lines, services or supply chains at a reduced rate,” the report said.

The tech sector could see a wave of acquisitions in the AI and machine learning markets in 2023 with the need for speed in digital transformation across all industries.

Persistent, pandemic-era supply chain disruptions could drive companies to look to M&A to boost operational resilience.

Asia-Pacific trends

Cramer explains why mergers matter to the stock market