The value of global merger and acquisition (M&A) deals was lower in the second quarter of this year even as the number of announced or completed deals flirted with near-record highs, according to the PitchBook Global M&A Report for the second quarter of 2023.
Deal value was down 6.5 percent in the second quarter compared to the first quarter, falling to $873.4 billion. This made it one of the weakest quarters since the pandemic hammered M&A deal value in the second quarter of 2020. Deal value was down 33.7 percent for the year and 41.9 percent from the quarterly peak set in the fourth quarter of 2021.
By contrast, deal count was relatively unchanged in the second quarter of 2023. It was down by just 13.8 percent from the fourth quarter 2021 peak. The report states this divergence is the byproduct of two powerful and opposing forces: higher interest rates and massive amounts of cash that remain on the books.
Financial sponsors rely on floating-rate debt to finance leveraged buyouts. The yield-to-maturity leveraged loans backing leveraged buyouts are up sharply, while leveraged ratios have collapsed. Higher borrowing costs and reduced access to credit translate to smaller deals.
The amount of unspent dry powder yet to be called stands at $1.35 trillion, which is just 10 percent shy of its all-time high. Meanwhile, U.S. corporations were holding more than $4 trillion in cash in the first quarter of this year, which was just 3.3 percent shy of the all-time high, or $5.8 trillion in cash if you include reserves held overseas.
As growth in corporate profits has become negative in recent quarters, attention has turned to buying revenue through acquisitions, states the report. Median M&A EV/EBITDA multiples stood at 8.8x in the second quarter, while median M&A EV/revenue multiples stood at 1.5x, according to the report.