Recession is worried it could start a 'lipstick' effect on deal activity in the coming year

December 16, 2022: -The volume and size of mergers and acquisitions experience a significant downfall in 2022 as macro headwinds decrease the global market.

For the initial time in more than three years, there were no mega agreements valued at more than $10 billion in the third quarter, according to the recent M&A report by Willis Towers Watson.

The 49 significant agreements valued more than $1 billion in the quarter, with 67 essential contracts closing in a similar period before a year.

Despite global slump fears, geopolitical tensions and anticipations for inflation and interest rates to keep increasing in 2023, WTW predicts dealmaking activity will keep going.

“An unprecedented item of disruptive force making headwinds for dealmakers, but opportunities,” Massimo Borghello, human head capital M&A which consults Asia Pacific at WTW, said.

“The fundamentals driving dealmaking are in place and, with valuations moderating following the historic levels acquired in 2021, strategic and financial buyers much similar will take advantage of better-priced opportunities for the development.”

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

The challenging operating environment is driving companies to sell off non-core assets, WTW said. For instance, energy firms could continue to divest carbon-intensive assets.

“This can make opportunities for buyers expanding product lines, services or supply chains at a decreased rate,” the report said.

The tech sector could see a level of acquisitions in the AI and machine lesson markets with the need for race in digital transformation across all factories.

Persistent, pandemic-era supply chain disruptions could drive the firm to look to M&A to improve operational resilience.