Dealmaking 2023: A Mid-Year Review


Written by Finalis

Last edited on May 08, 2024

5 min read

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As the searing days of midsummer are upon us, experts are already weighing in with analyses on the dealmaking space performance during the first half of 2023. 

In this blog, we will share some highlight data in the private markets for actionable insights on the dealmaking environment for our community. We'll delve into key events, making comparisons between 2021, 2022, and 2023—and shed light on the challenges in the IB space, and the expected forecast for the remaining part of the year.

Turbulent waves in the industry

The event that stood out as the one that brought the biggest disruption in the financial markets was the Silicon Bank failure and the subsequent crisis gripping the banking sector. This incident marked the largest failure of a U.S. bank since Washington Mutual in 2008. As numerous global technology companies relied on SVB for crucial financial services (e.g., lending, cash management, and investment banking), the SVB’s collapse had a direct impact on the lending environment.

As for the scope of the impact in the dealmaking landscape, fortunately the world of Private Equity (PE) didn’t suffer significant harm, and PitchBook states that it was an event from which the PE sector almost emerged unscathed. However, the financial market did experience a major consequence:

It led to a cautious atmosphere among lenders, fostering a risk-averse environment and a maintenance of strict control over leverage ratios.

The beat of dealmaking rhythms

The private equity deals market kicked off 2023 with a few challenges for dealmakers, and this came as no surprise especially considering the sky-high interest rates, which sent the cost of borrowing and servicing floating rate debt soaring.

As a result, the first half of 2023 echoed the same tune as the latter half of 2022. 

Putting it in concrete data points:

  • Fund deployment: saw a 49.2% decline (compared to the peak in 4Q21)
  • Realizations: presented a  staggering 67.6% increase (compared to the peak in 2Q21)
  • Fund performance: fell to the middle of the pack on a one-year horizon basis (though still outperforming the majority of asset classes and strategies)
  • Fundraising: tracked 15%-25% below 1H22.

M&A market trends

Ted Speyer, Managing director at Stout, assessed the facts that challenged dealmaking during 1H23 and settled on several key factors leading to this. High tax rates, inflation and market uncertainty have all combined to create a less than optimal environment for M&A activity. Numerous industries have experienced rough edges such as negative shifts in their valuations, portfolio companies that are facing a slower performance, and substantial increases in financial costs.

Given these suboptimal factors, Speyer highlights the commendable work done by the U.S. Federal Reserve in effectively communicating the real scenario, enabling dealmakers to adjust their expectations and avoid getting caught off-guard. Moreover he emphasizes that while geopolitical events inevitably impact the market to some extent, dealmaking appetite is no longer as closely tied to the effects of COVID or the Russia-Ukraine  conflict in Europe.

How did the M&A deal market perform? 

Deal volumes decreased 4% between 2H22 and 1H23. PwC experts observed a very interesting M&A behavior trend: divergence in dealmaking behavior based on their sizes:

  • Large deals (value +$1B): have presented difficulties to complete due to financial volatility and  more regulatory scrutiny. In this deal group, the volume decline was 56%.
  • Small deals (value $0-$1B): not affected as much by market volatility. In this deal group, the volume decline was 20%.

The divergence is remarkable, and suggests that mid-market deals are the staple of dealmaking, and they play a significant role in dealmaking. 

Looking ahead, dealmakers assessing landscape of M&A activity might not be dazzled solely by the kind of eye-catching megadeals that reached their peak in 2021. Instead, we anticipate a shift towards a more robust influx of mid-market deals, driven by companies pursuing strategic growth initiatives. These smaller yet impactful transactions have the power to fuel transformation and foster dealmaking growth. Although cash-rich corporations are poised to make significant moves, the upcoming months will witness mid-market transactions taking center stage. CEOs are wisely employing a blend of strategic acquisitions and selective divestitures, skillfully shaping their portfolios. The M&A arena is set to showcase a dynamic and diversified playing field, embracing the potential of mid-market deals to redefine the business landscape.

Exit activity and green shoots

Another significant dealmaking trend to note as a concern is the anemic level of exit activity, with the number of exits dropping by 22.2% from the first quarter of the year, consistently staying below pre-COVID levels. Investments continued to outnumber exits by three-to-one, calling for a balance to avoid potential pile-ups in the future. Despite this, the market has remained expectant, with encouraging signs at the end of the quarter, namely, notable PE exits via M&A and public listings. The multiples paid for these exits were promising, reinforcing PE's "build-and-buy" playbook.

Explaining lending market trends

Leveraged Buyout (LBOs) have dropped notably in 2023 thus far.

In brief, a Leveraged Buyout (LBO) is a financial transaction in which a company is acquired using a significant amount of borrowed money, with the assets of the acquired company often used as collateral in dealmaking. PE firms often undertake LBOs to acquire companies, intending to enhance their value and sell them at a profit in the future.

Some key lending data from the 1H23:

  • Average loan-to-value ratio debt presented a 43% decrease this year (from the five-year avg. of 52%)
  • Yield-to-maturity on new issue leverage loans deals backing LBOs during Q223 presented little change from nine months ago.

Has any positive inflection point emerged?

Up until this point, it may seem like the dealmaking outlook isn't all that rosy, but there's more to the story than meets the eye. You're probably wondering what comes next – what are the forecasts, and does the dealmaker space horizon look bleak or promising?

Navigating the turbulent waters of dealmaking certainly presented some headwinds, but now, the tide seems to be turning. Public markets have shown impressive resilience, with the S&P 500 rebounding by a remarkable 17.6% one-year basis, as of June 30. This recovery stands in stark contrast to the gloomy 18.1% one-year negative return just six months earlier.

The once-prominent negative denominator effect, which hindered progress, now appears to be losing its grip within the dealmaking space. Allocators find themselves with newfound breathing room, empowering them to make strategic choices. The question arises—should they allocate more to Private Equity (PE) ventures or maintain their current course?

According to the experts at PitchBook, banks will maintain their cautious approach when it comes to lending to LBOs across diverse industries. However, there's a silver lining as dealmaking activities are expected to rev up in 2H23, particularly in the tech sector, where buyouts account for a remarkable 76% of all deals. So, while the road may not appear entirely smooth, there's reason to believe that brighter opportunities are on the horizon.

"Private equity would like to do LBOs," said Melissa Knox, global co-head of software investment banking at Morgan Stanley. "The preference is to put as much debt as you can on the company at advantageous terms and get a high return on your equity."

The resurgence in confidence is palpable as big banks cautiously re-enter the LBO market after an eight-month hiatus. This move serves as a clear signal of renewed interest in large take-privates. Commitments for substantial take-private deals have even surpassed the impressive $15B mark. In lockstep with this trend, significant LBO loans are being evenly distributed, originating from both banks and private lenders.

Adding to the momentum, private credit funds have continued to lend throughout, acting as a vital lifeline for the LBO market. Their unwavering support has played a pivotal role in maintaining pre-COVID-19 levels of deal activity. 

It's evident that collaboration and innovation are shaping the way forward for dealmakers.

In conclusion, the first half of 2023 brought forth a dynamic mix of market conditions for U.S. PE deals. While facing familiar obstacles, private equity showcased its ability to weather storms and find opportunities to thrive.

How can Finalis help you?

We understand that there is a lot of dealmaking information out there. We know time is of the essence, and that's why we're here to assist you in consolidating vital information by gathering market insights curated by experts. Finalis can help you stay up-to-date with your industry. Get in touch with the Finalis Insights Team at to learn how.

We will continue to explore more aspects of the market to bring you the information that matters. Stay tuned for more updates! 

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