The Crystal Ball: VCs, private equity investors, and tech founders predict M&A activity for 2023

Term Sheet readers weigh in on what this year will hold for M&A.

The Crystal Ball: VCs, private equity investors, and tech founders predict M&A activity for 2023

It's 2023, where we ask Term Sheet readers—a slew of VCs, founders, private equity investors, and bankers—to look into their Crystal Ball and tell us what to expect in the year ahead. For this year's issue, we dug through more than 100 predictions, ranging from quick takes on whether venture capitalists would run for office to thoughtful analysis on whether philosophy majors will be at the top of the hire list in an artificial intelligence-powered world. And of course, speculation as to how many unicorns may lose their status, and intel as to which sectors are most poised for M&A deals.

What about for M&A? Here is what readers said 2023 would have in store specifically for acquisitions, in your words: (Note: Some answers have been shortened for clarity and/or brevity) 'We're going to see a deluge of M&A of tech startups who over-raised in 2020 and 2021. Many who previously flaunted their glamorous (and outrageously high) valuations in the tech press skipped critical growth milestones over the past few years and will now struggle to raise more capital in today's declining economy. Acquirers with strong balance sheets will be chomping at the bit to pay steep discounts for their novel tech products and strong talent, which won't be able to survive on their own as lofty valuations come crashing down.' —Jonathan Lehr, general partner and co-founder, Work-Bench 'While there is and continues to be overwhelming demand for mental health care solutions, the abundance of capital resulted in the funding of many companies that lacked sound business and/or clinical models.

As a result, 2023 will see significant consolidation in this space and some companies ending operations entirely.' —Payal Agrawal Divakaran, partner, .406 Ventures  'We expect a wave of consolidation led by corporate development teams and stronger startups looking to expand their product suites. ‘My balance sheet is more enduring than your app' will be one of the themes in 2023.' —Don Butler, managing director, Thomvest Ventures 'Whether we hit the technical definition of a recession or not doesn't really matter, as a slowing economy and higher interest rates are headwinds on projections and valuations. There is still a lot of debt that has to get syndicated and worked through the system, which restricts access.  Higher cost of capital means sellers have to reset their expectations of value.

Once that happens, there is still a lot of money on the sidelines that has to be put to work, so we are hopeful for a back half 2023 environment that is constructive.' —Jason Stack, managing director and head of M&A, Stifel 'Online grocery and food delivery will see continued consolidation. Strategics will start to dabble in M&A as legacy retailers still have a strong balance sheet and valuations for food e-commerce are getting attractive. Acquisition targets will have a strong financial profile but perhaps a weak balance sheet.' —Abhi Ramesh, founder and CEO, Misfits Market 'Specific to health tech, we are starting to see more mergers and consolidations and this will only accelerate in 2023.' —Dr.

Ling Wong, senior advisor, Lightspeed Venture Partners 'There will be massive consolidation among M&A advisory firms (and to some degree law firms) as the number of high-profile deals dwindles.  Well diversified firms with a middle market focus will be more resilient.' —Brian McPeake, partner, Goodwin Procter 'We expect to see M&A activity in support of long-term secular themes such as energy transition, digital infrastructure, workplace automation and AI. Activist shareholders will also persist agitating for operational efficiencies, capital return, ESG and portfolio optimization.  This is will be a year of dispersion, where winners can take it all.' —Michal Katz, head of investment & corporate banking, Mizuho AmericasOur new weekly Impact Report newsletter examines how ESG news and trends are shaping the roles and responsibilities of today's executives. Subscribe here.