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By Anirban Sen and Andres Gonzalez
NEW YORK/LONDON (Reuters) - Global mergers and acquisitions (M&A) activity shrank to its lowest level in more than a decade in the first quarter of 2023, as rising interest rates, high inflation and fears of a recession soured the appetite of companies for dealmaking.
M&A volumes during the first quarter slumped 48% to $575.1 billion as of March 30, compared to $1.1 trillion during the same period last year, according to data from Dealogic.
A banking crisis that started in the United States this month with Silicon Valley Bank and spread to Europe with the Swiss government-orchestrated sale of Credit Suisse Group AG to UBS Group AG roiled markets and stopped many deals in their tracks, investment bankers and lawyers said.
"The first quarter had extraordinary levels of volatility and uncertainty - more than expected going into the year. And that has the impact of postponing some announcements," said Anu Aiyengar, global head of M&A at JPMorgan Chase & Co.
M&A volumes dropped 44% to $282.7 billion in the U.S. and 70% to $81.87 billion in Europe. Deal volumes in Asia Pacific fell 29% to $176.1 billion.
Graphic: Europe among the hardest hit, https://www.reuters.com/graphics/GLOBAL-DEALS/movakwaoqva/chart.png "Having a well-functioning financing market is a critical ingredient for M&A. Market volatility has clearly been a challenge and weighed on deal volumes in the quarter," said Brian Haufrect, co-head of M&A for Americas at Goldman Sachs Group.
In the absence of debt financing, private equity firms were forced to write larger equity checks for their deals.
"If this negative debt financing environment continues for a few years, people may come to regret having over-equitized deals at the start. But if you have some confidence that in the next 12-18 months the financing market will improve and interest rates will come down, it's still a great time to transact now," said Daniel Wolf, partner at Kirkland & Ellis.
The total number of deals worth over $10 billion fell by a big margin from last year, as the appetite for large strategic tie-ups evaporated amid a tougher antitrust environment and macroeconomic uncertainty.
"The first quarter played out the way we thought it was going to, with the exception of the banking crisis, which is the last thing we needed," said Damien Zoubek, co-head of U.S. M&A at Freshfields Bruckhaus Deringer.
Major transactions during the quarter included Pfizer Inc's $43 billion acquisitions of cancer biotech Seagen, a Silver Lake-led consortium's $12.5 billion deal for software maker Qualtrics International Inc, and CVS Health Corp's $10.6 billion takeover of primary care provider Oak Street Health Inc.