Mergers and acquisitions peaked in 2021, when deal value topped $5 trillion. Since then, however, global value has been cut in half in just two years. The decline is explained by a dramatic shift in market and economic conditions. Inflation, interest rate hikes, and slower economic growth drove this downturn. As 2024 begins — a year expected to bring greater economic normalization — the outlook for the global M&A market is positive.
To look at the immediate future, we highlight two reports that analyze the state of the sector and its outlook: one by the consulting firm PwC and another by CMS and Mergermarket. While their forecasts differ in some respects, the overall view is that 2024 could mark the market bottom and see a recovery in M&A activity in certain sectors and areas.
PwC expects the global M&A market to “begin an upward trajectory, with activity gradually increasing as the year progresses.” Another interesting point is the return of mega deals — those over $5 billion — after a 60% drop.
CMS, for its part, points to a “predominance of smaller deals, which marks a change in trend compared with the last two years.” Its conclusions are that, at the European level, the percentage of dealmakers expecting M&A to increase is lower than the percentage expecting a decline (35% versus 43%). However, among the private equity firms surveyed, only a quarter anticipate a decline, compared with half.
Reasons for optimism
The most positive factor, and the main pillar supporting growth, is the state of the market. Improving financing conditions, with the expected interest rate cuts, mean that 60% of CEOs plan to make an acquisition in the next three years. Likewise, pent-up demand and liquidity and the need to transform business models are other reasons for optimism.
Consider private capital's dry powder of nearly $4 trillion, which represents the capital available to be invested or returned to end investors. At the same time, private equity funds manage around $12 trillion in assets, almost double the figure recorded in 2019. This shows that the market is healthy and has the capital to take on the deals that may arise in the future.
Sectors on the rise
Taking a closer look at sectors, some that were already driving corporate activity last year will continue the trend in 2024. According to PwC, this is the case for aerospace and defense, mining and metals, energy, utilities, pharmaceuticals, automotive, and technology.
All of them are being pulled along by subsectors that create a knock-on effect, such as artificial intelligence, semiconductors, electric vehicles, energy storage, biotechnology, and insurance brokerage.
The TMT and energy sectors will see the most significant increase in deals in Europe, according to the CMS report, which highlights that, given the inexorable path toward sustainability, 64% of dealmakers believe European regulations on ESG criteria and climate change will create business opportunities. In M&A, 85% say that environmental, social, and governance factors will lead to greater scrutiny of the effectiveness of mergers and acquisitions over the next three years.
What should different market players expect?
M&A investors and advisors are operating in a very attractive market in which activity will start to grow in 2024 and continue on an upward path in the coming years, especially considering that 45% of CEOs doubt their company's current trajectory will allow it to remain viable beyond the next decade.
This situation, combined with everything mentioned above, will force businesses to look to M&A as an alternative to keep growing their companies and keep them viable.
Advisors can also play a key role in structuring deals that result in more competitive and technologically advanced companies.
