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The landscape of mergers and acquisitions (M&A) seems to be poised for a rebound in 2024. After a period of economic uncertainty and strategic realignment, businesses across various sectors are gearing up for an increase in M&A activities, fueled by economic stabilization, technological advancements, and evolving market dynamics.
Renewed Confidence in M&A
In recent years, the M&A sector experienced a downturn due to economic uncertainties and market disruptions. 2023 marked a significant low, with global announced transactions reaching only $2.4 trillion compared to a historical average of $2.9 trillion (Morgan Stanley). And major M&A failures, such as the one with Adobe and Figma, caused uncertainty in the market for these industry-shifting business deals.
However, 2024 marks a turning point thanks to renewed confidence in the market. Tom Miles, head of Americas M&A at Morgan Stanley, commented, “The market forces are in place that make an eventual return inevitable.”
Key economic factors driving this resurgence include stabilizing interest rates and a push towards enhancing supply chain resilience. Additionally, industry consolidations are playing a pivotal role in shaping the M&A outlook for 2024.
The Deloitte 2024 M&A Trends Survey reveals a strong executive sentiment, with 83% expecting an increase in deal volume and 82% anticipating larger deals in their organizations. This optimism is rooted in the lessons learned during the recent volatile periods, where companies focused on strategic realignments and resilience-building.
Industry-Specific Trends
The technology sector is anticipated to experience a surge in activity this year, according to Morgan Stanley’s 2024 M&A Outlook. This is driven by the sector's rapid evolution, the buzz around AI, and the need for companies to stay competitive through technological advancements.
“We expect technology to be busier in 2024 as buyers and sellers converge on values that work for both sides,” explained Miles. “Some sellers will need capital to continue their growth plans, and that will lead to more M&A.” Buyers, on the other hand, are increasingly looking to acquire firms with innovative technologies to bolster their own offerings and to keep up with the rapidly changing market demands.
In the healthcare and biotechnology sectors, M&A is expected to be driven by the need for investment in research and development. John Collins, Head of Global M&A at Morgan Stanley, observed, “It’s a very big industry, and because biotech is so research-intensive, consolidation may need to happen.” Consolidation is seen as a strategy for pooling resources and expertise to foster innovation and the development of new treatments.
The energy sector saw an increase in activity during the second half of 2023, indicating deals in the making for this year. This trend is supported by strong operating cash flows and solid balance sheets of energy companies.
According to Nasdaq, “large oil and gas companies are under pressure to make investments to consolidate and scale.” The focus is on acquiring assets and companies that can offer strategic advantages in a transforming global energy landscape, particularly in the realms of renewable energy and sustainability. The push towards clean energy technology means this industry will continue to be a hotspot for M&A.
Factors Affecting M&A in 2024
Like most industries, M&A will be significantly influenced by the advancement of technology. The use of AI and data analytics is enhancing the efficiency and accuracy of every phase of M&A, from deal scouting to due diligence and integration. Generative AI could expedite M&A processes by up to 50%, as reported by Nasdaq.
Regulatory changes are another pivotal factor shaping the M&A terrain. As governments worldwide adjust their policies, especially concerning antitrust laws and cross-border transactions, companies must navigate an increasingly complex regulatory environment. These changes can affect the viability of deals, influencing everything from deal structures to the choice of target markets. Companies must stay agile and informed to successfully maneuver through these regulatory landscapes.
Lastly, geopolitical dynamics play a crucial role in shaping M&A strategies. Trade policies, international relations, and regional stability have become key considerations in the M&A decision-making process. Companies are factoring in these elements more than ever, as they assess the risks and opportunities associated with cross-border transactions.
The instability in Europe and the Middle East, for example, is predicted to drive European companies to look for international deals. Jan Weber, Head of EMEA M&A at Morgan Stanley, noted, “Large European corporations are showing interest in acquiring U.S. businesses.” This could lead to benefits for the comparatively stable U.S. economy.
Conclusion
As we look towards 2024, the M&A ecosystem is set to evolve, driven by a recovering economy, increased optimism among investors, and advances in technology. Companies seeking to navigate this terrain will need to leverage technology for smarter decision-making and stay abreast of the latest trends in the sector. As businesses adapt to the evolving economic landscape, M&A is poised to play a pivotal role in strategic growth and industry consolidation.
Sources
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