M&A grows more popular every year, no longer exclusive to large companies, an increasing number of SMEs are joining them on both the buy-side and the sell-side. The market is driven by mid- and long-term trends, in July's shared insight, we bring you some of the highlights in Dealsuite's mid-market trends report 2023.

M&A is becoming more popular across companies of all sizes

Companies tend to strive for growth. M&A is the only alternative to organic growth. Almost all listed and large companies understand that in addition to organic growth, they should pursue strategic deals to maximise growth. Evidence shows that static portfolios underperform. In contrast, successful companies use M&A and selective divestitures to continually shift their portfolios towards a better future position (McKinsey). An increasing number of mid-market companies follow the example set by large corporates. They recognise the added value of M&A and include it in their growth strategy. Thus, more players are finding their way into the M&A sphere. As the number of PE companies also increases year by year, there will be more competition.

Market trends are more diversified

New situations, new types of companies and new types of leadership are changing the M&A sector. Acquiring 100% of the shares is no longer the obvious choice. Deal structures become diversified; deal engineering becomes innovative. These days, deals can result in anything from total integration to a light form of cooperation. They may start small but lead to stronger, broader cooperation in the future. Generally, newer types of cooperation are based on mutual interest. This makes sense as most businesses are 'open to strategic opportunities'. With the diversification of deal structures, the Joint Venture model is gaining in popularity. In this setting the winners are those who discover how to help each other add value. Companies should look to find partners in business, rather than targets.

Active acquirers outperform in times of heightened economic volatility

Businesses typically respond to market downturns by pausing M&A. Convention suggests that it's too risky to do deals when the economic outlook is uncertain and financing is harder, and this is reflected in M&A deal volumes. Recessions always lead to a drop in deals. But research shows that companies are wrong to be cautious. Looking at previous recessions reveals that consistent M&A activity through all economic cycles generates the highest returns. Companies that were active acquirers before the global financial crisis in 2008 performed best by staying active during the recession, according to research by as well Bain as McKinsey. Bain research reveals that these companies earned an average shareholder return of 6.1% during the decade from 2007, compared to a return of 3.8% for companies that were active pre-recession but moved to the sidelines during the crisis. The gap is even bigger when comparing companies that were inactive in M&A generally. PwC found a similar effect on returns. Just one year later, companies that had completed acquisitions during the recession in 2001 out-performed the overall sector by double digits.