Mergers and acquisitions are generally most common in the technology, healthcare, financial services, and retail sectors. But some industries — including manufacturing and finance — saw more M&A action in 2022 than others. This shift resulted in a slight shuffling among the most sought-after business sectors in 2023.
As the economy slowed, the end of 2022 saw reduced M&A activity across all industries compared to the final quarter of the previous six years. Multiple sources reported between $719 billion (Bloomberg) and $832 billion (S&P Global) in total M&A activity in Q4 of 2022 across the globe, which is, of course, still a lot of action.
This dip in final-quarter deals is likely due to uncertainty related to rising inflation, steadily increasing interest rates, a possible economic downturn from the effects of the pandemic, and geopolitical issues from the War in Ukraine. (Bain & Company) But it’s important to keep in mind that, in 2021, an M&A boom swept across the U.S. economy with higher deal values because of the year’s incredibly low interest rates, which gave them more economic opportunities to fund deals for less.
In this article, we’ll take a closer look at the sectors indicating growth for best-selling businesses.
Technology, Media, and Telecommunications (TMT)
Technology still sees the most M&A deals of any industry. In 2022, there were more than 13,000 deals globally across all three major sectors — information technology (or simply “technology”), media and entertainment, and telecommunications. While this figure is a 21% decrease from last year, it’s still above figures reported before the pandemic started in 2020. Technology represents the highest portion of these deals, with nearly 11,000 globally. (PwC)
Nearly 80% of high-value M&A activity in the sector was scope deals, meaning buyers were interested in the business because it offered them access to a new market or a product or service offering. (Bain & Company) Cryptocurrency, virtual reality/metaverse technology, artificial intelligence, and cloud computing are all popular areas right now, so many tech companies of all sizes are searching for opportunities to expand their reach.
However, governments here and abroad have been implementing tighter regulations concerning data privacy, anti-monopoly and antitrust issues, and environmental, social, and governance (ESG) requirements. These changes could alter tech company strategies and operational abilities, affecting M&A activity and trends in 2023.
M&A activity in the financial services industry is now back to pre-pandemic levels. This activity still represents a decrease from last year, specifically when comparing H2 2021 and H2 2022. However, over 5,200 deals were made globally in 2022 across all three sub-sectors — asset & wealth management, banking and capital, and insurance.
Unlike the tech industry, the finance industry saw more deals focused on scale, which means the buyer was interested in the business for its human capital and other resources to grow and improve operational efficiency. In 2022, about 90% of the high-value M&A deals in finance were scale deals. (Bain & Company)
Like in technology, ESG plays a massive part in how buyers approach M&As with financial services companies. In addition, regulations on consumer data privacy and cybersecurity have put added pressure on fintech companies.
Industrial and Manufacturing
There were just over 4,500 deals across the three major sub-sectors — aerospace and defense, automotive, and industrial/advanced manufacturing. This activity puts 2022 about even with pre-pandemic deal volumes. Additionally, deal values in this industry decreased by 30% globally, less than the overall decrease in M&A activity last year.
ESG is also playing a part in mergers and acquisitions in this sector. Many businesses are shifting to more sustainable, environmentally friendly practices due to pressure from government regulations and the general public. Buyers must verify that sustainability is a common mission with the seller or that the seller’s company can help the buyer improve their practices, operations, and market share.
Convergence with the technology sector is another key driver in the manufacturing industry’s M&A activity. Buyers in all three major sectors will likely look to centralize all stages of design and production, meaning B2B technology and materials companies that were once partners with manufacturers may find themselves looking at an acquisition deal. (PwC)
Like technology, a rapidly changing landscape in the healthcare industry poses challenges for small and medium companies that need more capital to keep up with larger, better-funded companies. In addition, the continual rise in healthcare costs makes it even more difficult for companies to compete. As a result, for many, the best option is to be acquired.
Healthcare saw the most lucrative M&A deals in 2022 out of all industries. While the number of transactions declined from 2021 (by 23%), that number remained slightly higher than pre-pandemic levels. There were nearly 4,300 deals in 2022 globally, split between healthcare services and pharma/life science services. (PwC)
Nearly 85% of high-value M&A deals in the healthcare industry focused on scope, evidence that widening service offerings and market share is a critical factor for buyers in 2023. (Bain & Company)
Mergers and acquisitions are widespread in retail. The cyclical nature of this sector can often present cash flow difficulties for companies. But that makes them some of the best-selling businesses because they are well-positioned for acquisition by more solvent companies in the sector. In fact, we see much of the M&A activity in the retail industry take place during dips in the economy. For example, companies that manage to sustain good cash flow through a downturn, like the one that began emerging in late 2022, find themselves able to acquire competitors that could not stay afloat.
Almost 4,000 M&A deals took place in the retail sector in 2022, down by about 18% from the year prior. Inflation will be a significant factor in 2023 because it has impacted consumer activity in many markets, especially retail. Experts predict that the grocery retail sector could be particularly active in mergers and acquisitions. (PwC)
This year could be strong for small- to midsize business owners to take advantage of the rich M&A landscape. Specifically, in their report “Looking Ahead to M&A in 2023,” Bain & Company predicts a continued interest in deals valued under $500 million.
If you are considering selling your business, regardless of industry, contact Viking today for a confidential, no-obligation consultation. With decades of experience in buying and selling businesses in a wide range of industries, Viking M&A is here to help.