It’s risky to make M&A moves in a macroenvironment. But C-suites and boards focused on long-term growth and finding opportunities during uncertainty are warming to the idea.

“I’d say right now, CEOs and dealmakers are looking at any path to grow, make their companies more efficient, and balance that with risk,” Neil Dhar, PwC’s vice chair and U.S. consulting solutions co-leader, tells me. “When you look at growing, obviously acquisitions or dealmaking is a very popular path.”

I talked with Dhar about PwC’s new U.S. Deals 2023 Midyear Outlook report and what business leaders are saying about M&A. Improved executive confidence and a stronger debt market would increase the likelihood of an M&A upturn later this year, according to the findings. “I think you will see increased dealmaking, as the report suggests,” Dhar says.

He continues: “I’m a deal partner by background. So I’m in the market. I’m talking to corporates and private equities, and I see increased optimism around dealmaking. Now, that doesn’t mean that they’re doing deals necessarily. But I see their deal sheets more and more robust.”

PwC’s research finds “deal volume starting to get back to pre-pandemic levels, but not at the levels that we were at in 2021,” Dhar says. “If you look at 2021, where we had almost $5 trillion of dealmaking, from a volume standpoint, obviously that was a record year that we haven’t seen—ever.”

The PwC report points to four key trends likely to drive M&A in the coming months. One is the necessity for business reinvention. More companies are using deals to transform business models and respond to an evolving marketplace, such as increasing digital capabilities and A.I., expanding supply chains, or incorporating ESG into their portfolios.

This wasn’t included in PwC’s report, but an example would be Nasdaq Inc.’s announcement on June 12 that it has entered into a definitive agreement to acquire Adenza, a financial software firm used by banks and brokerages, for $10.5 billion in cash and common stock.

PwC’s research found that in contrast to the broader deals slowdown in other sectors, there was considerable insurance deal activity from late 2022 into 2023. “Insurance, on a macro basis, has been relatively hot for a while now,” Dhar explains. The sector is “at the crossroads” of both technological changes, like new operating models, and the influence of private equity firm partnerships, he says. Between mid-November and mid-May, there were 194 announced transactions representing over $7 billion in deal value. 

Other key factors influencing M&A activity are opportunity amid uncertainty—C-suite leaders and boards want to reshape their businesses in line with long-term strategic priorities—and deals that provide resilience and innovation for growth and sustainability as businesses take on challenges from climate change to technological transformations.

CEOs and CFOs are assessing their business models, their front offices, customer acquisitions, and the impact of technology, Dhar says.

“Our most recent CEO survey had a really interesting point: 40% of CEOs were actually concerned about the viability of their company in 10 years’ time,” Dhar says. “And with that, there is a laser-focus around, where am I going to get growth to drive my business forward?” That sentiment, coming from the CEO and the board, “permeates across the entire management team, including the CFO.” 

PwC also finds that capital allocation will also be a big consideration in M&A. “Inorganic growth is clearly an area where you’ve got to balance risk around capital markets, cost of capital, and inflation,” Dhar explains. However, “people have just become much better, smarter scenario planners when you’re looking at modeling deals.”

Sheryl Estrada
sheryl.estrada@fortune.com

Big deal

Almost four-fifths of the global workforce has either "quietly quit" or "loudly quit," costing the world’s economy almost $9 trillion per year, according to Gallup. The U.S. is "already in a recession—not an economic recession, but an emotional one," Jon Clifton, CEO of Gallup, writes in a new report that highlights the decline in employee engagement and its financial consequences, Clifton writes. "Some organizations have spent years trying to figure out how to motivate their workforce," he writes. "Some don’t even try. Yet some companies solved their quiet quitting problem even before the term was born. The world’s best organizations see 72% of their workforce engaged—using the toughest engagement standard in the world. What if every organization followed in their footsteps?"

Going deeper

"Building Robust RAI Programs as Third-Party AI Tools Proliferate," a new report by MIT Sloan Management Review and Boston Consulting Group (BCG) examines how Responsible A.I. (RAI) programs are being implemented in organizations worldwide. While more than half (53%) of organizations rely exclusively on third-party A.I. tools, having no internally designed or developed A.I. of their own, 55% of all A.I.-related failures stem from third-party A.I. tools, according to the report. The findings are based on a global survey, interviewing C-suite executives, and gathering insights from an international panel of A.I. experts, including academics and practitioners.

Leaderboard

Chris Boehmler was named CFO at Quantum Computing Inc. (Nasdaq: QUBT), a nanophotonic-based quantum technology company. Boehmler succeeds Chris Roberts, who, in addition to the CFO role, managed the company's legal function. Roberts is continuing in the role of general counsel and a strategic advisor to the company as a consultant. Boehmler has over 20 years of financial expertise. Boehmler joined Quantum Computing in early 2022 as the company's controller. He started his career at Credit Suisse and Booz Allen Hamilton supporting financial institutions and government clients, respectively. He went on to hold various senior financial positions at technology companies and financial institutions, including Bridgewater Associates and Intelsat.

Christie Kelly, CFO and treasurer at Realty Income Corporation (Realty Income, NYSE: O), has decided to retire at the end of the year. Jonathan Pong, currently SVP and head of corporate finance, will succeed Kelly as CFO, effective Jan. 1, 2024. Before joining Realty Income in 2014, Pong was a VP in equity research at Robert W. Baird covering the REIT sector and began his career with Deloitte & Touche LLP.

Overheard

“It starts with human hands, and we have people finishing off the bowls after they’re produced by the machine, so it ends with human hands.”

—Timothy Noonan, Sweetgreen’s vice president of operations strategy and concept design, told CNBC in regard to the salad chain's robotic kitchen function or "Infinite Kitchen." Sweetgreen opened its first automated location, in the Chicago suburb of Naperville, in early May. Later this year, Sweetgreen plans to open a second Infinite Kitchen location, which has not yet been disclosed, CNBC reported.