Merger and acquisition activity in the US and Canada rounded off a weak first half of 2023 as rising interest rates and a worsening economic outlook weighed on dealmaking.

Just 3,828 deals were agreed in the second quarter, a fall of 30.4% during the same period in 2022. A total transaction value of $270.59 billion for the quarter equated to an even more dramatic 39.6% year-over-year decline.

That took the total value of M&A in the region to $538.41 billion in the first six months of 2023, a decline of 39.3% versus the same period in 2022.

Weak volumes, weaker valuations

The return to annualized declines came after a positive month in March when valuations increased by 9% on a year-over-year basis, breaking a 13-month streak of declines. But that proved to be a false dawn as the big deals that drove the March total higher dried up in the second quarter.

The US M&A market has been impacted as the federal funds rate climbed to 5%-5.25% in just over a year as the Federal Reserve continues to fight inflation. The increased cost of borrowing has weighed on bond issuance and made taking out loans to fund M&A and other forms of business investment more challenging.

The technology, media and telecommunications (TMT) sector, along with healthcare, dominated the top 10 US deals by value in the second quarter with four and three placements, respectively. Yet the largest announced deal for the quarter was in the energy sector with the proposed $18.83 billion acquisition of Magellan Midstream Partners LP by pipeline operator ONEOK Inc.

In a reflection of the depressed valuations, the ONEOK deal was just the third-largest of the year, well behind Pfizer Inc.'s $42.82 billion agreement to take over Seagen Inc. in March.

Healthcare led the way for M&A in terms of total valuation for the second-consecutive quarter with deals by Merck & Co. Inc. and Astellas US Holding Inc. contributing to a total of $54.81 billion. The energy and utilities sector was next at $53.48 billion, ahead of $44.48 billion in TMT.