Higher interest rates, an uncertain global economy, and the banking crisis conspired to whack the number of mergers and acquisitions by 45 percent in this year’s first quarter, compared to the same period in 2022, giving the M&A market its weakest start to a year since 2013, the Financial Times reported.

The number of deals was down 63 percent in Europe, 47 percent in the U.S., and 24 percent in Europe.

Health care deals were the exception, numbering the most in two years.

“Big Pharma wants move-the-needle assets that are de-risked as far as possible,” Phillippe Gallone, managing director and health industry specialist at Moelis & Co.

Outside of healthcare, the combination of factors turned investors away from risk, the FT said.

“Increasing concerns about the broader economy and the prospect for a recession later this year in the U.S. have made decision-makers hesitant to move forward,” Frank Aquila, a senior partner in the M&A practice at law firm Sullivan & Cromwell, told the FT.

Last month’s collapse of two U.S. banks, Credit Suisse, and other banks’ share prices plunge has left investors wondering “if this banking crisis has been avoided or just deferred,” Naveen Nataraj, an investment advisor at Evercore, said in an FT interview.

A key to the M&A market’s weakness is companies’ declining valuations, the FT said. Buyers and sellers are reluctant to negotiate deals that fix companies’ lower values on the public record.

Also, rising interest rates have made it harder for buyers to finance purchases.

Private equity firms are filling a portion of that gap, with Apollo Global Management, Ares Management, and Blackstone agreeing to make a record $5.5-billion loan to Carlyle Group so it can buy 50 percent of Cotiviti, a health care analysis company, according to the FT.

“We are seeing several transactions, primarily in growth sectors, where the large majority of the purchase price is being funded through equity,” Keven Brunner, Bank of America’s co-head of M&A, commented to the FT.

TREND FORECAST: As the economy slows, more companies will become distressed and, therefore, become takeover targets.

With banks tightening lending, private equity will grow as a source of financing for takeovers in the future, giving the firms an additional revenue stream.