M&A Deals Predicted to Increase in 2023, Survey Shows

Katten survey indicates that with companies holding large amounts of unallocated capital, middle-market private equity dealmakers see financial services, technology and insurance acquisitions as big opportunities for 2023.


In the middle-market private equity sector, the only certainty in 2023 for dealmaking is uncertainty.

 “Nearly three-quarters of investors expect deal activity in 2023 to either remain at the same level as last year or increase (40% and 33%, respectively), while over a quarter (26 percent) expect a slowdownm” according to a recent report out from Katten Muchin Rosenman LLP, a full-service financial law firm,

The report, which polled 100 U.S. middle-market PE dealmakers engaged in a diverse array of industries, notes the amount of “dry powder” private equity firms have on hand is causing the disconnect in investors’ perception of what 2023 holds for M&A.

S&P Global, in a market intelligence blog, reported that private equity dry powder is “approaching $2 trillion globally,” roughly 2% of annual global GDP, and that “dry powder accounted for 28.3% of private equity assets under management in 2021, [and is forecasted] to decline to 25.3% of AUM by 2027.”

In terms of where this unallocated cash is being allocated, 58% of Katten’s survey respondents said they are currently investing in financial services, 48% in real estate assets and 43% in the technology sector, with respondents targeting multiple sectors.

Survey respondents identified the industries with the biggest opportunity over the next 12 months. The most-favored industry of respondents, financial services, had 54% of participants saying the sector has a big opportunity in 2023, with 47% identifying technology and 34% saying the insurance sector. The primary catalysts for opportunities within these sectors, per respondents, were the transformational opportunities that exist, followed by falling valuations.

Dealmakers, when asked to name the challenges facing M&A in 2023, cited policy and macroeconomic conditions. The top three concerns, —the availability of capital, inflation and interest-rate hikes—are all interrelated and relevant to the Federal Reserve’s interest rate hiking campaign in 2022. Despite these challenges, more than two-thirds of dealmakers said they were more confident that deals will close in 2023, and 18% indicated that they were “significantly more confident compared to a year ago.”

Complicating things further in the realm of completing deals is governance. The Securities and Exchange Commission has begun its review of regulations on GPs as “investment advisors,” introducing rules that will govern the fees charged by PE firms and hedge funds, while the Federal Trade Commission is focused on combatting antitrust concerns in private equity roll-up deals, which target small businesses in the same sector to create conglomerates.

Despite this backdrop, the competitive landscape of M&A is fueling a shift to all-equity deals, a prominent theme in 2022, which looks likely to continue in 2023. 41% of respondents to Katten’s survey said they believe all-equity structures will be an important contributor to winning deals in 2023. Furthermore, three-quarters of those surveyed expect an uptick in all-equity deals in 2023, and a majority (55%) of respondents engaged in all-equity deals, as either buyers or sellers, in more than half of their deals in 2022.

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