Published by Jessica Weisman-Pitts
Posted on March 2, 2023
5 min readLast updated: February 2, 2026
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By Bjorn Reynolds, CEO of Safeguard Global
In a downturn economy, one might not think of M&A (mergers and acquisitions) as a vital driver of the job market and business resiliency. However, M&A activity can serve as a crystal ball for companies attempting to time the market in order to pick up other organizations and acquire the best talent that fuels growth.
While the days of funding and valuing companies strictly based on revenue growth may be gone, the truth is that, even in times of uncertainty, good companies still exist in popular sectors who will continue to benefit from dealmaking. Those with good timing and discernment will acquire the talent and technology to achieve market dominance in the next five years.
The End of Soaring Valuations Doesn’t Mark the End of M&A
The 2021 and 2022 M&A craze started when CEOs and founders were able to successfully navigate their organizations through the perils of the pandemic. Following initial lockdowns, private valuations soared, and the stock market seemed unstoppable. The United States saw a record 480 IPOs in 2020 topped by 1,035 in 2021. Monthly M&A soared beyond pre-pandemic levels.
Then the Titanic strikes the iceberg. Amidst rising inflation, Russia invades Ukraine in February 2022, and the Federal Reserve starts to hike interest rates in March, denying the VC and PE (private equity) systems cheap capital to keep everything afloat. The last hurrah is May 2022, with $269.5 billion in M&A activity, followed by a sharp decline.
But the PE market doesn’t just close shop due to a worrying economy. In fact, it’s quite the opposite. It still has a lot of money it wants to give out and hungry VC capitalists who will invest in strong, profitable companies – even if they’ll go about valuing them differently. And this will allow companies to go out and make acquisitions that power gains in product and customer portfolios.
The trick is to follow where valuations really skyrocketed in 2021 and where an influx of money was given out.
The ROI Behind M&A In a Downturn Economy
In a difficult economy defined by high inflation, low unemployment, humbled tech stocks, and $2.4 trillion of “dry powder” in PE funds, we should really be expecting plenty of deals looking ahead into late 2023 and 2024. Despite M&A’s dramatic slowdown in 2022, cross-border transactions also continue to offer compelling growth opportunities. But which sectors are expected to see the most activity and what’s the expected ROI for acquirers who buy up these businesses now?
Players with cash—particularly those in tech, healthcare, energy and heavy industry—can cheaply buy and monetize IP (intellectual property) from startups struggling with profitability. Alternatively, PE firms sitting on dry powder can buy and roll up several companies. There is a strong case for doing either one. According to Bain & Company, firms that were “active acquirers” before and during the 2007-2009 recession achieved higher annual average shareholder returns over the next decade compared to companies that sat it out.
Since customer acquisition tends to become tougher in a recession due to the decrease in consumption and disposable income, companies can’t rely on gaining more dollar share from existing, loyal customers. Through M&A, a company can pick up new product lines and lookalike customers, expanding the audience it sells to and the number of things it can sell to them. Amazon’s 2008 acquisition of Audible, the online audiobook and podcast service, is a great example.
What’s more – companies may acquire technologies or even competitors that once threatened to disrupt their business. Oil and gas companies, for instance, brought in record profits in 2022 after Russian supply became inaccessible. In ten years, however, they risk having stranded assets such as EVs, emerging climate technologies and government policies reducing fossil fuel demand. This is the moment to acquire companies in EV charging, biofuels, next-gen carbon capture, and more that raised too much capital too soon and can’t regain their 2021 valuations. The founders and their VCs may be looking for a lifeboat.
Now Is the Time to Go Build
According to Citizen Bank’s 2023 M&A Outlook survey, 62% of middle-market company buyers name growth as their M&A motivation, compared with 48% the prior year. No one knows exactly when or how quickly the economy will sink into recession territory—or how long the PE market and companies up for grabs at lower valuations will last. The key to M&A in 2023 is timing the window where cash-burning companies need funding, but still have the option to turn into the next hottest company or unicorn.
There may not be a robust return to M&A transactions like those once seen, but 2024 is going to be the year companies use M&A to address current weaknesses and carve a path to industry leadership through size and scale. Now is the time for organizations to solidify their position in the market and focus on the growth years – whether that be 12 months, 18 months or two years from now.
With so much innovation and growth among so many sectors, why should dealmaking end? The answer is simple – it doesn’t have to. All you must do is look at the right structure of ownership and remain prepared and ready to tailor strategies to navigate the financial, regulatory and technical complexities required when executing deals, while competitors are busy pushing on the breaks.
M&A stands for mergers and acquisitions, which refers to the process of consolidating companies or assets through various types of financial transactions.
Private equity is a form of investment where funds are directly invested in private companies or used to buy out public companies, often with the goal of restructuring and improving their performance.
Valuations are assessments of the worth of a company or asset, typically based on financial metrics, market conditions, and future earnings potential.
ROI, or return on investment, is a financial metric used to evaluate the profitability of an investment, calculated by dividing the net profit by the initial cost of the investment.
Cross-border M&A refers to mergers and acquisitions that involve companies from different countries, allowing firms to expand their operations and market reach internationally.
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