What Are the Top M&A Trends to Know in 2023?

We all know 2021 and 2022 were tough for the global economy. Deal flow, however, tells a different story. While mergers and acquisitions (M&A) activity tends to slow during times of uncertainty or market volatility, it barely budged last year (though deal size dropped) and will likely increase this year.

In 2022, for example, we helped over 800 startups get acquired. Three months into 2023, we’ve already helped more than 200 startups get acquired. We recently released our Acquire Multiples Report for February 2023 and our data matches the wider market – deal volume has increased though valuations have fallen slightly.

What does all this mean for you as a seller? We think it bodes well.

We want to share a few trends we’ve noticed in 2023 and how you can capitalize on them when it’s time to sell your business.

Most economists tell the average investor to beware the short-term forecast. Famed American economist, John Kenneth Galbraith, even went so far as to say, “The function of economic forecasting is to make astrology look respectable.”

You’re never going to predict exactly what the market is going to do in the short term, but you can make an educated prediction based on trends. And there are six major trends we think sellers need to know about today. Some were triggered by recent geopolitical events like COVID-19 and the war in Ukraine, while others have been in motion for some time.

We offer some potential takeaways for each trend, but draw your own conclusions from them too.

Tax Policy

Deloitte says US tax policy may be more favorable for dealmakers in 2023 and 2024. The political dynamic in Washington, DC has shifted and there is less threat of a capital gains tax hike.

Capital gains tax in the US can eat into your profits from any acquisition. If you hold an asset for over 12 months, you owe long-term capital gains taxes ranging from 0 to 20 percent. Assets held for less than a year are taxed at ordinary income tax rates of up to 37 percent.

What This Means for You

With less risk of a capital gains hike, you can sell your business this year as in previous years without worrying about losing more to the taxman.

Use of Talent

Multiple waves of layoffs hit big tech, financial services, and manufacturing in 2022 and 2023 (with a reported 170,000 firings in 2023). With the rise of remote, hybrid, and offshore work, the definition of employment has shifted from indefinite nine-to-five in-office employees with benefits and 401Ks to project-based contractors. There have even been reports of laid-off tech employees returning to their original employers as contractors without benefits.

Businesses have realized the classic employment model isn’t competitive in the modern market. Nimble small businesses and startups increasingly operate at a fraction of the cost of their large competitors by hiring positions like coders as contractors in other countries.

What This Means for You

Acquirers today look closely at how you structure employment. For example, if you contract a team of skilled and reliable customer service reps out in the Philippines for a fraction of the price of a team in the US, buyers likely consider your employees more valuable assets. Just being able to source employees from these foreign markets could prove a big selling point for your business.

Financing Issues From Inflation

As inflation ramps up, it’s become harder for buyers to source financing from traditional avenues like banks due to high interest rates.

One way acquirers minimize financing costs is by negotiating deals for minority stakes in companies – for instance, by buying less than 50 percent of a company majority-owned by another private-equity firm. These deals can avoid legally changing control, typically requiring a company to refinance its debt, bankers, and advisers. Acquirers in 2022 struck $240.4 billion in such deals. These numbers are down from $385.5 billion a year earlier but up four percent compared with 2020.

Another increasingly common method, especially in mid-market deals and below, is seller financing, where a buyer puts down a closing cash payment and repays the rest in installments to the seller. This again allows buyers to sidestep high interest rates from banks.

There are also new forms of alternative financing which allow buyers to receive loans in exchange for interest payments as a percentage of revenue.

What This Means for You

When selling your business, be clear that you’re open to other deal structures to help close the gap between their expectations and yours.

Read our article on how to negotiate a sale for other dealmaking tips.

Supply Chain Shocks

The world was just getting back on track from all the logistical disruptions of Covid when the war in Ukraine and US sanctions against Russia threw another wrench into supply chains.

However, increasingly diversified manufacturing and new logistics companies promise to change things. As logistics becomes less centralized, the world economy needs more connectors making supply chains simpler for businesses. 

M&A deal flow in logistics was strong in 2022 as traditional providers looked to beef up their offerings with new logistics companies. While deals slowed down with inflation, people still expect the sector to be hot in 2023.

Besides obvious hits to logistics, the rising costs of energy globally (especially in the EU) are causing things like cloud storage to become more expensive. That’s lowering margins on many previously high-margin tech businesses that relied on cheap cloud storage and will likely drive them to pass the additional costs on to users. 

As most tech companies rely on a host of other online tools (CRMs, automation tools, analytics platforms) to run, and these tools usually rely on cloud providers, expect to see rising costs all around.

What This Means for You

If you’re in a logistics-heavy sector like ecommerce, buyers want to know how you’re fulfilling orders and where your suppliers are. If a buyer sees a logistical nightmare on the horizon it could significantly affect your sale price.

For all other businesses, you want to demonstrate ways your business is immune to global ups and downs. The best way to do that is by keeping overhead costs as low as possible. If a supplier or service provider suddenly raises prices, you then have the revenue to absorb the cost. 

For example, try that cheaper cloud provider or that newer CRM with a special lifetime deal. Keep your ear to the ground for information about new tools too. You’ll thank yourself when you can show a buyer a high-margin business despite a market downturn.

Flush Private Equity Firms

Despite news to the contrary, many reports now show that private equity (PE) firms did a great job with fundraising at the end of 2022 and are waiting to deploy mountains of cash. As of Q3, they were sitting on an estimated $819 billion.

While investors are warier about acquiring in this economy, they are poised to strike should any business fitting their needs appear with a tantalizing pricetag. PE firms may also use their capital to help finance deals from other PE firms or acquire the growing number of businesses afraid of burning through cash.

What This Means for You

If you’re selling a business in 2023, you can rest assured buyers are waiting to scoop it up for the right price. Your main challenges will be accurately evaluating your business and making the market aware of your sale.

Geopolitics

Besides the war in Ukraine hurting global outlooks, other events like countries decoupling from the USD and exports from China slowing down may affect M&A in traditional markets.

In a recent survey of 1,400 acquiring businesses and private equity firms, Deloitte found acquirers pursued targets in areas closer to home and prioritized developed nations for stability.

The greatest M&A deal declines of 2022 were in China as its economy was hobbled by Covid lockdowns and experienced weakening demand for exports. Chinese deal volumes and values fell by 46 and 35 percent, respectively. However, as China declines, regions like India, with its large number of new startups and rapidly growing population, have become more popular among investors.

What This Means for You

While PE firms may show favoritism towards businesses closer to their borders this year, it doesn’t mean you can’t sell abroad. However, to attract institutional acquirers in other countries, ensure your business operates as transparently as possible.

Consolidation

Large companies acquiring smaller companies to expand their offerings or eliminate competition has been going on for some time now. Especially as new tech development speeds up, buying smaller tech companies can be much more effective for large corporations than a massive R&D budget to keep up with the Joneses.

For example, private equity firm Thoma Bravo acquired Coupa Software for $8 billion in 2023 to access its business expense tracking tech. Now Thoma Bravo boasts an in-house system it can use to help portfolio companies better track their finances.

What This Means for You

Now is a great time to sell companies on the cutting edge of new technology. If you think your product would work well as part of a consolidation sale then you should try to get noticed by strategic buyers. Usually, these are large corporations working in your industry or industries adjacent to your industry. 

Many businesses find strategic buyers through natural relationships with enterprise clients or by putting their businesses up for sale on marketplaces like Acquire. 

Themes in Acquisitions

Now let’s talk about where specifically people are acquiring businesses in 2023.

Healthcare

Every year you can always count on people getting older and needing better healthcare. An aging population in the West and rising healthcare costs are driving consolidation in the healthcare industry. Despite hits to staffing at pharmaceutical and healthcare companies in 2022, consulting firm PWC believes 2023 will be a time of large-scale growth for the industry, with many corporate companies relying on M&A to achieve growth.

This trend has been mounting for some time. In 2021, PE firm, Blackstone, announced the formation of a new platform, Blackstone Life Sciences, to invest in companies across the entire life cycle of the healthcare industry.

Some of its acquisitions have included:

  • Medline Industries (2021) – A majority stake acquisition for a reported $34 billion. Medline is a global manufacturer and distributor of medical supplies. The purchases notably included leases for a network of pharmaceutical fulfillment centers.
  • HealthEdge (2020) – A majority stake acquisition for $700 million. HealthEdge is a provider of healthcare IT solutions.
  • Ancestry.com (2020) – A $4.7 billion acquisition. Ancestry is well known in the US for helping people use DNA from blood samples to trace their heritage and map potential health problems.

Sustainability

With the Paris Climate Accords and other agreements coming into effect in major consumer regions like the US in 2021, businesses now have huge tax incentives and are under public pressure to get sustainable. Companies may look to acquisitions to increase their sustainability offerings quickly. In fact, more than one-quarter of all VC funding is now going to climate technologies, especially those focused on cutting emissions.

One recent example of a consolidation purchase in sustainability was when IBM announced it acquired Envizi in early 2022. Envizi was a leading data and analytics software provider for environmental performance management. IBM added Envizi’s tools to its software so clients could automate the feedback from corporate environmental initiatives used in their daily business operations.

AI

By now, we’ve all heard about ChatGPT, and perhaps the eventual death of creative writing (though I hope if you’ve read this far, you can still see the benefits of doing this craft manually).

Understandably, most tech companies realize they might become irrelevant if they miss this trend – and so does private equity.

We’ve already seen multiple successful ChatGPT tool exits and expect many more in 2023. AI companies this year may be the crypto companies of the past five years (though most hope they aren’t nearly as speculative).

Ihor built a Google Chrome extension writing assistant in 10 hours with code created in ChatGPT. He closed a sale on Acquire.com in just three weeks.

For an institutional example, on March 21, 2023, strategy consultant, Accenture, acquired Bangalore-based industrial artificial intelligence company Flutura, hoping to increase its automation capabilities for clients. Can you see the consolidation trend here?

While wary of huge sale prices, companies and other investors around the world are still searching for companies to acquire in 2023 – provided they meet certain criteria.

Never before has it been easier to source deals and create new businesses. And while you shouldn’t expect the same acquisition price tags of the years leading up to the pandemic (Remember Bolt buying crypto payments business, Wyre, for $1.5 billion in 2022?), if you can create a great product in a desirable field at the right price, you’ll likely sell. 

Here are our tips for getting acquired in 2023.

Build a Business With an Acquisition in Mind

The reason most businesses don’t sell is because their founders didn’t prepare for it.

From the beginning, try to create a business you think would be valuable to others. For example:

  • Try to find paying customers before you spend on improving your product.
  • Build in a field that has lots of growth potential.
  • Keep careful track of your finances and important documents.
  • Try to automate management as much as possible. The most sellable businesses can operate even without the help of the founder.

For more tips, read our article about how to create a desirable startup that attracts buyers.

Get the Word Out About Your Acquisition

As PE grows, we can safely say there are more buyers out there for a good business than ever before. Coincidentally, there are more places than ever to advertise your sale.

Besides traditional routes like M&A brokers, you can list your startup on a growing number of M&A platforms like Acquire.com and be seen almost instantly by thousands of potential buyers. If you put out a desirable business with great financials, it’s only a matter of time before you find the right buyer – though you may want to learn how to vet them.

Get Creative With Your Deal Structure

Especially if you’re selling a mid to low-market business, your buyers may not be aware of every deal structure available. 

On Acquire, sellers can offer and wide range of deal types besides cash upfront like seller financing, third-party financing like SBA loans, and more.

The more flexible you are about how you receive your payment the more likely you are to land your dream acquisition in 2023.

Is M&A Activity Slowing Down in 2023?

While average deal size decreased, M&A deal frequency only dropped slightly. Reports show that private equity firms are sitting on a massive pile of cash (higher than $3 trillion) ready to deploy to grow their investments through consolidation acquisitions in the middle market.

What Was the Largest Acquisition of 2023?

While technically initiated in 2022, semiconductor and infrastructure software creator, Broadcom’s acquisition of VMWare for $61 billion is considered 2023’s largest acquisition so far. The deal combined VMware’s multi-cloud offerings and Broadcom’s diversified software portfolio. This created a one-stop-shop for “the incredibly complex IT landscape.”

Broadcom spent the second half of 2022 conducting due diligence and communicating the deal’s benefits to VMware’s customers and partners and expects it to go through in 2023.

Where is M&A Activity Happening in 2023?

Experts predict average deal volume in 2023 will favor the US and other mostly-developed countries. Investors this year are more risk-averse and want to ensure profits.

However, though deal volume will favor the West, experts also predict M&A deal volume will grow in:

1. Asia Pacific

2. Africa

3. Latin America

What Are the Hottest Sectors For M&A in 2023?

As mentioned in the above article, the hottest sectors for M&A in 2023 are:

  • Healthcare
  • AI
  • Data security
  • Sustainability

In most of these fields, large businesses want to consolidate their holdings by acquiring smaller companies, especially tech tools to augment their services.

Who Is Acquiring Businesses in 2023?

Especially in 2023, expect large numbers of acquisitions bankrolled by private equity and other large corporations looking to stay on top of their respective industries.

Some major deals on Acquire.com:

Other major deals in 2023 so far include:

  1. Amgen’s acquisition of Horizon Therapeutics
  2. Thoma Bravo acquisition of Coupa Software
  3. Johnson & Johnson’s acquisition of Abiomed Inc.
  4. Japan Industrial Partners Inc., Suzuki Motor Corp., and ROHM Co. Ltd. acquisition of Toshiba Corporation
  5. Broadcom’s acquisition of VMWare
  6. Keurig Dr. Pepper Inc.’s acquisition of Nutrabolt
  7. Kroger’s acquisition of Albertsons
  8. United Health’s acquisition of LHC Group
  9. Amazon’s acquisition of One Medical

And we’re sure there are many more to come.


The content on this site is not intended to provide legal, financial or M&A advice. It is for information purposes only, and any links provided are for your convenience. Please seek the services of an M&A professional before any M&A transaction. It is not Acquire’s intention to solicit or interfere with any established relationship you may have with any M&A professional.

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