Mergers and acquisitions are the next economic shoe to drop. Worldwide M&A deal volume already slumped by 33% in the second half of 2022; now, amid a banking crisis and increased interest rates, deal volume plunged 50% year over year in the first quarter of 2023. It’s the lowest level of dealmaking in more than a decade, with few imminent signs of a rebound.
The primary reason for M&A’s newfound torpor is the ailing global market: Few want to make deals in such an uncertain economy. This is particularly true for large deals, with only three deals larger than $10 billion announced in 2023’s first quarter, compared to eight in both 2021 and 2022. These deals included the acquisition of Oak Street Health by CVS Health and the acquisition of Qualtrics by Silver Lake and CPP Investments, illustrating a broader shift to acquire tech capabilities that give access to new markets.
This shift can also be seen in the energy industry and the banking industry. Both ExxonMobil’s and Chevron’s most recent acquisitions (Materia and Renewable Energy Group, respectively) have been focused on strengthening their green energy capabilities, rather than acquiring smaller market players. Likewise, JPMorgan Chase’s recent acquisition of Aumni is the latest in a series of fintech deals designed to shore up its technology capabilities. Top venturing firms Sequoia and Andreesen Horowitz also invested more in fintech than any other sector in 2022, including approximately one-fourth of Sequoia’s total deal volume.
This shift also reflects a change that I wrote about in November, when I discussed how companies seeking value creation are expanding their corporate venturing practices to gain lower-risk access to a broader set of emerging technologies and capabilities. A record number of new corporate funds were established in 2022, when corporate-backed venture capital deals declined just 2%, compared to 25% for general venture capital. And even since then, Yamaha Motor and CVS Health have announced new corporate venture funds.
As the market rebounds, I’d expect to see an even greater focus on capabilities in both M&A and venturing used to enter new markets over simply competing for more share of a company’s existing markets. And if you want more, look out for my upcoming report on capital market trends in June, or schedule an inquiry or guidance session.
This blog falls under Forrester’s tech insights and econometric research (TIER).