Global dealmaking experienced a slowdown in 2023 as the market battled headwinds on several fronts. In a ten-year low in annual value, almost US$3.2 trillion of deals were announced last year. Volume, meanwhile, sank to its lowest annual figure since 2018, with a total of 36,640 deals announced.
This year has also had a slow start. A total of 8,017 deals announced in Q1 marks the lowest quarterly figure since 2020.
There are multiple factors at play behind the current slowdown in dealmaking activity, with high interest rates, tougher financing conditions, and macroeconomic and geopolitical uncertainty all playing their part. Regulatory hurdles are also proving an increasing headache for dealmakers, with increased scrutiny delaying, extending and—in some cases—even blocking potentially industry-defining deals.
Regulators across the globe appear to be taking an increasingly interventionist stance. At least US$361 billion of announced deals were challenged by regulators worldwide in 2022 and 2023, according to management consultancy Bain & Company, with US$255 billion eventually closing following remedies.
While regulatory intervention is nothing new for M&A and private equity practitioners, a surge in activity among UK and EU competition bodies is keeping dealmakers on their toes. This downward pressure could hinder any potential dealmaking revival.
Deals under the microscope
Several high-profile deals are currently being scrutinized by EU and UK competition authorities, the outcome of which will set out boundaries for future M&A within their respective sectors.
The EU antitrust authorities blocked US biotech company Illumina’s purchase of cancer-screening startup Grail, on the grounds that it stifled innovation and limited consumer choice. The EU claimed jurisdiction over the deal even though the target had no presence there and the transaction was not caught under merger control rules of the bloc or its member states.
Notwithstanding a healthy degree of doubt as to whether it had jurisdiction over the case, the European Commission hit Illumina with a record €432 million fine in July 2023, after the company closed the deal without approval from EU regulators. The fine—equal to ten percent of Illumina’s revenue—is the largest the Commission could have imposed for this type of infringement.
EU regulators then ordered Illumina to sell the US$8 billion company in October, with the deal expected to finalize this quarter. The fallout surrounding the deal has triggered increased scrutiny from European regulators on deals where the target is relatively small but has significant potential for market disruption—an aspect they have been accused of overlooking in the past. Deals involving technology groups buying smaller rivals have become a major area of focus for both UK and EU antitrust watchdogs seeking to safeguard market competition.
Across the Channel, the UK’s Competition and Markets Authority (CMA), blocked Microsoft’s US$75 billion purchase of gaming giant Activision Blizzard in April 2023 despite the fact that the European Commission had accepted the parties’ commitments and approved the deal. The deal was finally cleared by the CMA in October after Microsoft made certain amendments to its concessions.
A planned £600 million sale of the Telegraph Media Group, publishers of The Telegraph newspaper and Spectator magazine, to a United Arab Emirates-backed consortium has also been met with serious concern from the UK government, which is attempting to push through new legislation to prohibit foreign governments from owning national newspapers. The proposed sale has been fiercely opposed by senior government officials, who say the planned acquisition has “exposed a gap in the law.” The CMA is currently reviewing the deal.
Both EU and UK regulators moved to block US design software company Adobe’s proposed US$20 billion acquisition of smaller rival Figma, on grounds of innovation and competition concerns. The deal was abandoned in December 2023.
Last but not least, the EU Foreign Subsidies Regulation adds yet another layer of complexity for deals involving large EU targets. Investors from outside the EU need to be prepared to expect a significant degree of uncertainty and often protracted review processes, as the Commission is yet to form an established practice in that regard.
Regulators expand their remit
EU and UK regulators are increasingly broadening their focus when assessing deals—a trend that could put more potential transactions in jeopardy.
Antitrust authorities are also finding fresh arguments to oppose deals, as seen in the Commission’s triggering of Article 22 of the European Merger Regulation to challenge Illumina’s purchase of Grail. The rarely used power enables the authority to examine deals by large companies taking over smaller rivals, even if they fall below the revenue threshold for EU mergers.
Following an appeal by Illumina, the Commission’s decision is being reviewed by the Court of Justice of the European Union. The outcome, expected by the end of the year, holds the potential to reshape the EU antitrust landscape.
In the UK, the Brexit vote has empowered the CMA to take a more interventionist approach toward large-scale global mergers. The authority’s newly formed Digital Markets Unit gives it greater influence to affect the outcome of tech mergers, even if deal parties have a limited nexus to the UK.
The CMA’s move to initially block Microsoft’s purchase of Activision Blizzard was an unprecedented divergence from Brussels and a clear signal of the watchdog’s newfound autonomy and direction of travel.
Outlook: Getting deals over the line
With so much at stake, many dealmakers will be anxious to ensure they comply with the stricter regulatory environment in which they are operating.
Those who succeed will be the best prepared, with extensive due diligence needed to make a watertight case for a deal. Increased deal times are becoming the norm, with twists and turns to be expected along the way. Dealmakers who factor this into their initial planning will be less likely to run into problems further down the line.
Transaction terms can be designed to mitigate delay-related risks. Break fees, for example, can give both parties an extra incentive to complete the transaction.
Forces such as competition concerns, ESG compliance, and a growing sense of protectionism are bringing deals—particularly in sensitive industries such as technology and life sciences—into sharper focus. Intense regulatory scrutiny shows no sign of abating, at least in the near term, and boards must learn to adapt their strategies to ensure that deals can cross the finish line.
