Cross-border M&A fell to $1.57 trillion worldwide in 2022, down from an all-time high of $1.7 trillion in 2021, according to Pitchbook, a financial database. The number of international deals actually dropped to 9156, a total decline of 11%.

But from a broader perspective, it’s not particularly bad news. As a comparative trend, cross-border M&A transactions are still higher than they have been historically, in spite of the more recent—and potentially temporary—slowdown.

Current economic and political challenges have created a combination of factors that have fueled uncertainty, caution, and a bit of a “wait until the storm passes” attitude in the minds of buyers, sellers, and financial lenders worldwide.

Three trends particularly stand out:

  1. Steadily increasing interest rates, combined with decreased availability of debt in certain regions, had an overall tempering effect on dealmaking last year, and to some extent, it still does in 2023.
  2. Geopolitical events, most significantly the war in Ukraine, took a measurable toll on international transactions—and confidence.
  3. Concerns about the impact of inflation worldwide add even more fear and hesitancy when it comes to cross-border M&A decisions.

Despite the recent slowdown, long-term trends in cross-border M&A are clearly upward

Long-term growth in cross-border M&A is driven by two major buyer groups:

  1. Large corporations who continue to expand their businesses into foreign territories and find that M&A is a faster and more certain way to gain access to new markets, rather than going “greenfield”.
  2. Private equity firms also increasingly deploy international buy-and-build strategies to accelerate the value creation process, especially after having acquired a first-platform company in a given industry.

PE firms have learned that breaking into new markets and turning a national leader into an international player has a directly positive effect on valuation levels when selling the company.

New Challenges, New Opportunities

This is not to say, however, that everything is rosy in the international M&A arena, nor is it by any means simple.

International mergers and acquisitions are driven by various factors, like reducing competition, penetrating new markets, diversifying product lines or services, and gaining rights to intellectual property such as patents, trademarks, and copyrights.

As a result, international M&A often follows trade. Most cross-border transactions take place between countries that do a lot of business with each other. And from a mid-market perspective, I estimate roughly 1/3 of M&A transactions are cross-border in the sense that the buyer and seller come from different countries. This number is typically higher in smaller countries like The Netherlands that are more accustomed to working internationally than their larger counterparts, such as the United States.

Manufacturing, consumer, and professional services have historically been sectors with high volumes of cross-border M&A, but during the last decade, technology, media, and telecom (TMT) have shown the largest increase in the number of deals and value.

The bottom line is that cross-border M&A adds further challenges to the already complex process that characterizes dealmaking. Cross-border transactions bring additional risk and complexity due to differences in cultural, political, economic environment, law, tax rules, and accounting, not to mention disparities in corporate culture itself.

But there is another bottom line to also consider. International M&A can offer a level of financial rewards and business growth that cannot be achieved by regional or national deals alone. More and more, M&A opportunities for mid-market companies are becoming increasingly international.

Cross-border M&A growth is good news for mid-market buyers and sellers who are looking for more strategic deals, increased market share, and worldwide expansion and growth.

Martijn Peters is Founder and Managing Director of DEX international M&A, a Netherlands-based company specializing in structuring and managing M&A transactions. He has broad experience as an international deal maker and currently serves as President of Globalscope Partners.

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