M&A market trends in 2024: Signs of resurgence on the horizon

2023: When uncertainty caused a decline in dealmaking

After a period marked by unprecedented M&A activity amidst economic stimulus and historically low interest rates, the downturn in the US market that emerged in 2022 persisted throughout 2023. Year-over-year, the first half of 2023 experienced an M&A deal volume decline of 37% relative to 2022. This trend extended globally, with global M&A declining by 45% over the same period.

Escalating geopolitical tension, heightened regulatory scrutiny, increasing rates and economic uncertainty prompted many companies to reassess their approaches to M&A activity, considering factors beyond traditional economic analyses. Amid various contributors to the declines in the US, the noteworthy rise in interest rates played a pivotal role. Faced with heightened financing concerns, many companies put their deals and growth plans on hold and instead focused on their core operations. Adding to the economic shifts, a pivotal event occurred in March 2023 when three high-profile regional banks failed within five days. This development sent shockwaves through the US economy, triggering widespread public and private market uncertainty, with fears intensifying that a US recession was imminent or already underway. However, as the year progressed, the M&A outlook became slightly less pessimistic as interest rate hikes slowed, inflation eased, and stock market performance improved.

The 2024 Outlook: Caution meets optimism

Although the cost of capital is still high compared to where it sat in 2021 and early 2022, it has moderately decreased from the highs of 2023. Furthermore, since July 2023, the Federal Reserve has held the federal funds rate flat. This, coupled with recent signals that a series of declines could occur in 2024, may foster a more favorable lending environment over the next year. With private equity groups still sitting on a record-breaking amount of dry powder to deploy and portfolio companies that need to be realized to share cash flow back to limited partners, there is a strong likelihood of increased private equity activity. Similarly, the public markets are expected to improve in 2024. Amid growing optimism regarding potential rate cuts and recent GDP outperformance, the US is already feeling the effect of improving conditions.

In the evolving landscape, one phrase gaining traction across the globe is artificial intelligence (AI). Over the next year, there is an expectation that buyers will intensify their focus on the potential impacts of AI during due diligence efforts.

1. LSEG, Refinitiv Workspace, accessed November 29th,2023.