Top Three Predictions for 2023

Against the backdrop of geopolitical turmoil and soaring inflation, central banks have taken action to tighten monetary policy, resulting in equity market volatility and increased costs of acquisition financing. While macroeconomic factors may weigh heavily on executive confidence, there is cause to be optimistic regarding the 2023 M&A activity outlook for investors and businesses on the Island of Ireland.

Our top three predications for the coming year are:

1. Lower Deal Multiples Unlocking M&A Activity

   Following a protracted period of heightened competition driving deal multiples to historic levels, it is generally expected that 2023 will bring a ‘softening’ across a number of sectors. Uncertainty and stock market decline is expected to reduce the valuations for targets, whether they are public or private.

   Lower multiples in certain sectors may help to unlock some deals as investors seek to capitalise on reduced valuations. This will likely result in some valuation gaps between buyers and sellers which will require navigation via deal structuring.

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2. M&A Activity | Evolution of Diligence

   As deal multiples soften, diligence will prove critical in validating investment returns. While traditional diligence remains paramount in M&A Activity, dealmakers may begin to place more emphasis on IT and ESG diligence to unlock potential deal value. Indeed, one longer term dealmaking trend that continues to play out is that of technology-driven disruption.

   Enhancing technology can help companies recognise synergies, reduce costs and appeal to new customer bases, all of which present additional value in the face of less favourable operating conditions.

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3. Cash is King

   One of the primary obstacles to deal activity in 2023 is likely to be the availability and cost of financing.

   Due to recent rises in interest rates, a proclivity to fund transactions from a reduced level of debt is anticipated which will present challenges for many Private Equity firms however, with record levels of dry powder the industry will surely seek to put it to use. In our experience, appetite for M&A Activity from Private Equity and corporates remains strong with considerable competition for high quality businesses from both Irish and international investors.