The wave of mergers and acquisitions expected as a result of strong adjustments in the capital markets since April 2022 has not come and probably will not come. While this conviction is shared by many, there are no definitive indicators that explain this phenomenon in any way. The expectation for a high volume of transactions makes sense when we consider the many years of the market with high capital availability and the prioritization of growth over fundamentals and the size of the adjustment in liquidity and high interest rates from 2022 onwards. counterintuitive market response and what can we expect for 2023 and 2024?
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Relevant drop in transaction volume:
Comparatively, the number of Latin American M&A, Private Equity and Venture Capital transactions in the fourth quarter of 2022 was not much different from the first quarter of 2021, according to TTR Data, with a difference of just 12 transactions.
However, we see that the financial volume of these transactions has been decreasing significantly since the 4th Q2021, but - except for the abrupt drop in the 1st Q2021 - without major discontinuity. In other words, throughout 2022 it was already known that there would be a significant tightening in the capital market. In short, companies and market operators have had some time to prepare for the current scenario.
In parallel, investments from Growth Equity, Late Stage and Early Stage Venture Capital fell abruptly from 2021 to 2022. We know that in recent years the population of startups has multiplied intensely and with these numbers it is obvious that many of them that expected or needed to be raised to continuing their journey will not be successful, for the simple fact that there is much less capital available...
...and in a context in which the prospect of exit and return of liquidity for investors has decreased even more dramatically, compared to the years before 2022:
Retained dry powder:
The amount of Venture Capital resources continued to increase and ended 2022....