Activity ebbs, but buyers are still spending

It wasn’t long ago that conversations were dominated by talk of an incoming ‘hard landing’ in the US. Soaring inflation rates, with the consumer price index (CPI) surging to a more than 40-year high of 8.9% by June last year, forced the Federal Reserve to put its full weight behind taming demand with a sharp pace of interest rate increases. As the year progressed, that rhetoric took a calmer tone as inflation rolled over and growth held up. Speculation turned to the Fed achieving a soft landing after all.

Unemployment has been creeping up, moving from 3.5% to 3.8% between July and September, indicating that policy is having its desired effect. A potential derailment to the economy, however, is the fact that headline inflation inched back up by 70 basis points through Q3 to 3.7% in September. While the core measure is proving to be stickier than hoped, leaving a further rate hike on the table and the potential for the mantra “higher for longer” to be an uncomfortable reality.

Volume slacks, value holds

M&A has been slowing across the Americas since mid-2022, and took a further step down in Q3 this year. Every market in the region recorded a decline in deal count. However, deal value has been propped up by some monumental transactions that meant the Western and Northeastern US markets both logged quarter-on-quarter increases.

These included a long-awaited US$42bn spin-off by Johnson & Johnson, which looks set to be one of the top 5 transactions globally in 2023. In all, there were 14 megadeals between July and September, all of which were in the US.

The resilience of the upper end of the market is testament to the strength of the US economy up to now. Acquirers remain engaged and willing to make large, high-conviction bets. Still, they will be closely monitoring how inflation pans out over the final quarter of the year for cues on what to expect from the rate environment, which remains a lingering point of concern.

Published in association with Datasite, Deal Drivers Americas provides an in-depth review of M&A activity in 2023, as well as an outlook for the year ahead.

The report is also available on datasite.com.