Dealmaking slump in North America extends into Q3 2023

North American M&A activity declined again in the third quarter as high interest rates and a weakening economy provided an increasingly hostile environment for dealmaking.

The number of deals struck in the US and Canada fell 29.6% year over year to 3,640 in the quarter, a seventh consecutive quarterly decline. The aggregate value of those deals fell less sharply, down 8.6% to $246.9 billion.

While some large deals were announced toward the end of the quarter — Cisco Systems Inc.'s $29.41 billion agreement to buy cybersecurity software company Splunk Inc., for example — the increased cost of borrowing and the growing consensus that the Federal Reserve will maintain higher interest rates in its battle to reduce inflation weighed on transaction activity.

Valuations holding up better

The Fed's rate hiking regime has contributed to a collapse in the pace of dealmaking. Total transactions have collapsed on an annualized basis for 20 consecutive months with the volume in September down 33.4% to 1,131, the lowest since May 2020 when COVID-19 was causing ruptures in financial markets.

While the volume of M&A continues to slump, deal valuations are performing much better. The $109.74 billion of deals agreed in September is the third-highest monthly total so far in 2023 and was down just 1.4% from the year-ago period.

Technology, media and telecommunications was the most active sector in the US during the third quarter with 708 deals and had the highest aggregate value, at $59.29 billion. It also had the most valuable deal with Cisco's proposed acquisition of Splunk.

European packaging group Smurfit Kappa Group PLC's proposed $20.97 billion takeover of WestRock Co. was the only other deal worth more than $10 billion in the quarter. Energy Transfer LP's $8.93 billion agreement with Crestwood Equity Partners LP was the third-biggest deal for the period.

The energy and utilities sector was the least active in the quarter in terms of deal volume, with 129. However, it spent the second most on M&A overall, at $51.17 billion, due to the relatively large size of each transaction value.