9 Takeaways from the Investment Banking Update for FY 2022

After a record 2021, 2022 was a disappointing year for investment banks. However, 2023 should be a better year thanks to a strong pipeline and merger and acquisition (M&A) deals waiting to happen.

Here are nine takeaways from our FY22 Investment Banking update (which you can access here).

  1. Companies with solid market positions, dry powder, and the capacity to take on debt will be well-positioned for fast, profitable growth, similar to when acquirers made industry-defining deals during the global financial crisis of 2008-09.
  2. Last year, the investment banking revenues of all major investment banks decreased from 2021 due to unfavorable market conditions, from rising inflation and volatile markets to recessionary fears and restrictive policies from banks. However, most major investment banks expect an improvement in 2023 thanks to M&A demand and a robust pipeline.
  3. Lower, more conservative valuations are expected in 2023 due to the macroeconomic outlook. Lower valuation typically means heightened competition as the market is favorable for buying. Lower valuations also mean more obstacles for companies interested in initial public offerings, or IPOs, as they’ll be up against a bear market and volatility.
  4. We expect to see more portfolios changed through divestiture, separation, and restructuring activity. Last year, restructuring helped make advisory firms resilient.
  5. In 2022, M&A deals had their worst year-over-year decline since 2001, falling by over one-third from 2021. Reasons for decreased M&A activity include rising inflation, higher interest rates, and the threat of global recession. Other factors at play are Europe’s energy crisis and a weakened euro.
  6. Small- and midsize-deals are expected to remain popular in the M&A space due to their lower degrees of risk, reliance on financing, and regulatory scrutiny.
  7. AI, machine learning, video games, and the Metaverse are predicted to see a lot of M&A activity. Software deals were the most prevalent M&A deal last year. There is a balance to be struck here, though – with the market being so volatile, start-ups that prioritize efficiency over model accuracy and complexity will be at an advantage.
  8. M&A advisory firms also had a challenging year, with revenues declining for all major firms other than PJT Partners. However, M&A advisory firms generally had a better year than investment banks and showcased more resilience. As they look to the future, these advisory firms are cautiously optimistic about the outlook.
  9. In FY22, global debt capital markets (DCMs) raised USD 8.3 trillion, down 19 percent from FY21. So far in 2023, though, DCMs have had a strong showing, which is expected to continue.

Learn more about these trends and the 2022 performance of individual investment banks and M&A advisory firms by reading the full FY22 investment banking sector update here.

Leah Moore
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