Deal-making Thrived in 2022, Then Hit a Road Bump

“People will need to adjust their strategy,” said Antonio Bavasso, a partner and antitrust specialist at the law firm Simpson Thacher & Bartlett. “Are they willing to litigate to take their deals through?”

One part of the M.&A. market suffered an especially sharp decline: special purpose acquisition companies, known as SPACs or blank-check funds, which raise money in the public markets to buy privately held companies.

Just as quickly as SPACs surged in popularity in 2020 and 2021, so they fell out of favor this year: 170 such funds were raised, a 75 percent decline from last year, according to Refinitiv. Perhaps more important, the number of announced SPAC mergers fell 22 percent, to 226, while the number of canceled SPAC combinations more than doubled, to 55.

The reasons for the cooling off, experts say, include closer scrutiny of blank-check funds’ governance, as well as the relatively poor performance of companies that have gone public by merging with SPACs. Investors in these funds have also increasingly demanded to get their money back, reducing the overall amount of capital available to the companies that combine with SPACs.

“Redemptions and post-close trading performance are real headwinds to continued M.&A. volume in the sector,” said Mr. Caggiano of JPMorgan. “I think people look at that and say, ‘If I go down that route, the SPAC isn’t really going to bring much capital to the table.’”

Despite all those challenges, M.&A. advisers (who tend to be a largely optimistic lot) believe there’s reason to hope for a respectable 2023. Among them is the fact that many companies want to expand or shift their business strategies, and doing a deal is often the best or easiest way of doing so.

That doesn’t necessarily mean a uniform pace of deal-making. Mr. Caggiano expects 2023 to start off slowly before ratcheting up, in a reverse of 2022. But he and others believe that mergers activity should remain fairly robust.

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