General

According to the 2023 Global and China M&A Market Report released recently by Bain, the total transaction size of the global M&A market in 2022 was 3.8 trillion US dollars, down 36% year on year. Among them, the scale of strategic transactions was 2.6 trillion US dollars, down 32% year on year. At the same time, China's M&A market has kept pace with the trend of the global M&A market, with the strategic transaction amount reaching US $304bn, down about 34% from 2021, according to Huacheng's import and export data observation report.

Zhou Hao, global partner of Bain Corporation and chairman of private equity and M&A business in Greater China, said that in the first five months of 2022, the scale of the global M&A market will return to the level before the outbreak of COVID-19. Since the second half of last year, the pace of investment has slowed down and the market has entered a consolidation stage due to the impact of the Federal Reserve's interest rate increase and other macroeconomic policies.

Global mergers and acquisitions are going forward hard

According to the above report, in 2022, the median of global strategic transaction multiples (enterprise value/EBITDA) was 11.9 times, falling to the lowest point in 10 years. Although the trading multiples fell sharply and the super-large transactions stagnated in the middle of the year, the trading volume decreased by only 9%. This shows that the transaction is still ongoing, and Huacheng Import and Export Data Observation reported.

The Asia-Pacific region has shown the same trend as the global market. In 2022, the volume of mergers and acquisitions in the Asia-Pacific region fell by 22% year-on-year, slightly lower than the level before the outbreak of the epidemic. Intra-regional M&A accounted for 88% of the transaction volume in the Asia-Pacific region. This proportion is higher than the global average of 73%. In China, India and Japan in the region, more than 90% of transactions take place in China.

The trend of the Indian market is different from that of the global M&A market. Driven by the record cash reserves and asset availability, the volume of strategic M&A transactions has soared and the transaction volume has increased by 139%, reaching the highest level in history. 2022 also became the largest trading year in India's history.

In the Japanese market, the trading volume fell by 20% in the first three quarters of 2022, but the trading volume was the same as that in 2021. This indicates that small transactions in the market have increased. However, unlike 2021, few Japanese enterprises will conduct large-scale cross-border transactions with the goal of transforming their business portfolio in 2022. Similarly, few enterprises continue to sell non-core and non-strategic businesses. As Japanese enterprises adjust their business portfolios and more and more stable financial investors acquire and split businesses, transformational mergers and acquisitions may make a comeback in Japan.

In China, the amount and number of strategic transactions decreased by about 34% and 24% respectively compared with 2021. On a monthly basis, although the transaction amount declined from September to November, the number of transactions increased steadily from September to December. This also shows that there are a large number of small transactions in China's M&A market. According to the statistical data of Bain Company, during this period, there were only five transactions with more than US $5 billion in China's M&A market, accounting for 17%, down 6% year on year; The proportion of transactions below US $500 million reached 38%, as reported by Huacheng Import and Export Data Observation.

M&A market may rebound

According to the above report, in 2022, the valuation of many industries fell one after another, and the technology, medical health and life science industries became the representatives. However, 80% of the executives of the enterprises interviewed also said in the survey that mergers and acquisitions would be considered as the core of business strategy in 2023, and it is expected that the same number or more transactions will be concluded this year.

According to the report, the volume of strategic M&A transactions in the healthcare industry fell by more than 30%, the average transaction size fell by about 15%, and the median number of strategic transaction multiples fell from 20.3 times the historical high to 15.1 times. It is noteworthy that the super-large transactions in the fourth quarter of last year indicate that the long-term basic driving force of M&A transactions is still strong.

In the subdivided fields of the health care industry, on average, the impact of 1 percentage point of endogenous or external growth on total shareholder return (TSR) is 4 times that of 1 percentage point of EBITDA margin. In addition, the top 25 pharmaceutical, medical technology and payer enterprises hold at least 15% of the revenue in the past 12 months, and all have large cash reserves. "Looking ahead, US $100 billion of patents will expire in 2030. In order to fill the potential growth gap, the pharmaceutical and health industry may lead the rebound of M&A activities in 2023," the report said.

At the same time, the energy and natural resources industry is also rapidly adjusting its business portfolio. The report found that 80% of the respondents in the energy industry had evaluated the possibility of separating or splitting up some businesses. In the first three quarters of 2022, the total amount of divestiture activities reached as high as US $250 billion. At the same time, M&A activities to promote energy transformation are increasing. According to Huacheng Import and Export Data Observation, at present, mergers and acquisitions of this theme account for 27% of all transactions in the energy and natural resources industry, up from 21% in 2021. 72% of respondents said that future M&A activities would focus on new business areas or establish new growth engines. Compared with other industries, energy and natural resources enterprises have more cash reserves available for investment (US $300 billion). However, the risks/rewards of energy transformation transactions are different from the traditional models, requiring enterprises to adopt new ways of value creation. "Enterprises must understand the difference between scope transactions and traditional scale transactions that have been mainstream in the industry for decades, and adjust their strategies accordingly to achieve the greatest success," the report said.

In order to accelerate the realization of environmental and social objectives, the number of ESG mergers and acquisitions of industrial enterprises has increased. However, it is still difficult for these enterprises to quantify the M&A activities under the ESG parameters. Bain estimates that one out of every 10 transactions in various industrial sectors involves ESG. A class of enterprises can quickly enter a more environmentally friendly and beneficial market segment by acquiring neighboring businesses. Another kind of enterprises hope to improve their production or manufacturing capacity through acquisition, so as to achieve their ESG goals.

"According to historical experience, at present, the asset price is at the low level for many years, and the market will provide sufficient opportunities. Enterprises should seize the window period and take bold action. On the one hand, through active and in-depth due diligence, improve the speed and quality of mergers and acquisitions; on the other hand, carry out scope transactions (committed to helping enterprises enter the market or region with faster growth) " Zhou Hao said that Huacheng's import and export data observation report.