The slowdown in deal making that began in mid-2022 became more pronounced in Q1’23, with deal volume down by 23 percent and deal value sinking by 60 percent from the previous quarter.
Technology deal count slid to 778 from 1,034 in Q4’22, while deal value dropped to $46.6 billion from $84.7 billion. Although the fall in the volume of media transactions to 279 from 341 in Q4’22 was relatively modest, deal value plunged to $900 million from $30.8 billion. Telecom transactions decreased 21 percent to 58 from 73 in Q4’22, and deal value sank 67 percent to $4.5 billion from $13.6 billion.
M&A in Q1’23 was marked by these trends:
- The Fed factor: The Federal Reserve’s hawkish stance on interest rates to combat stubbornly high inflation was a major factor fueling negative sentiment among deal makers.
- Much smaller deals: Transactions were much smaller than those completed during the post-pandemic M&A boom. Mega deals all but disappeared.
- Valuation gap: Amid rising interest rates and falling asset valuations, there was a big gap between the price at which buyers and sellers are willing to strike a deal.
With inflation still high and the possibility of higher interest rates for longer, most TMT deal makers will maintain a cautious stance. Attitudes (and activity) are unlikely to turn more positive until they see signs of lower inflation sticking and the cycle of rate hikes ending—which is necessary to ease the cost of financing deals. However, we do not expect rate cuts until 2024 barring a financial crisis.
Download our report for a comprehensive review of the TMT deal trends in Q1’23 and KPMG deal professionals’ views on how the next quarter may shape up.