Dealmakers expect M&A to ease in 2023 due to higher funding costs

According to KPMG, M&A activity in Ireland will stagnate or decline as tighter funding conditions impact both value and volume.

But the change has tipped the balance in favor of buyers after years of seller-driven activity, the consultancy said in its 2023 M&A outlook.

Of the 150 executives surveyed by KPMG, 84 percent believed transaction volumes would either remain flat or decline this year due to market uncertainty.

Almost three-quarters said multiples paid for companies would ease after a period of record activity, creating a buyer’s market.

It’s also why three out of four said they would look for opportunistic mergers and acquisitions to take advantage of lower valuations to spur inorganic growth.

“Despite economic uncertainty, there is plenty of opportunity for M&A activity in 2023 as market multiples ease,” said Mark Collins, Head of Deal Advisory at KPMG Ireland.

“Prime Irish destinations continue to be of interest to both international and Irish investors. Due diligence in all its forms will be essential to validating investment returns, particularly given the macro environment.”

KPMG said select sectors like healthcare and financial services still offer good opportunities for sellers, but particularly for companies with robust business models and strong management teams.

The company said private equity was sitting on a lot of “dry powder,” while tight corporate buyers had strong balance sheets.

But unlike in recent years, respondents said buyers are now less willing to take on heavy debt burdens to fund transactions because of higher financing costs.

Just over half of the survey participants indicated that the availability of debt capital and the cost of financing would be the main obstacles to doing business this year. Another four in ten said inflation was also a key concern, suggesting that economic trends warrant caution.

Transaction data from Refinitiv showed M&A in Ireland slowed significantly in 2022. While the number of transactions was relatively stable, values ​​collapsed over the course of the year.