As we head into 2024, M&A or mergers and acquisitions will gain momentum again. Market evolution is evolving, driven by new technologies, economic changes, and shifting consumer demand. Here, we examine the top M&A trends shaping the industry this year.
The State of the M&A Market
From a Difficult Period
The global M&A market has seen significant ups and downs. After a revision in 2021, in 2023 there was a sharp decline, with global M&A activity down 16% to $3.1 trillion. Despite these challenges, optimism will return in 2024, with analysts predicting a rebound.
Factors Supporting Market Durability
Several factors contribute to the resilience of the M&A market. The rise of AI, the growing importance of sustainability, and a tech-savvy consumer base are pushing CEOs to view M&A as a crucial strategic tool. Rapid adaptation is essential, as organic growth alone is often insufficient.
Key Trends in M&A
Programmatic M&A: A Proven Strategy
Programmatic M&A, involving frequent small to mid-sized deals, has consistently outperformed other strategies. Companies using this approach delivered a median excess total shareholder return (TSR) of 2.3% over ten years. This strategy includes actively managing portfolios and divesting non-strategic assets to enhance performance.
Cash Reserves and Private Equity
In 2023, private equity (PE) activity decreased significantly due to high capital costs and regulatory scrutiny. However, with over $2 trillion in undeployed capital, PE investors are expected to re-enter the market as conditions stabilize, potentially driving a new wave of M&A activity.
Geographic and Sectoral Variations
The Americas led M&A activity in 2023, with deal value at $1.6 trillion, driven by large deals and strong economic growth. Europe and the Middle East faced greater challenges, with a 30% decline in deal value. The Asia-Pacific region saw a 19% decrease, although certain markets, like Japan, experienced robust growth.
Sectoral Shifts
The Global Energy and Materials (GEM) sector has emerged as a major player in M&A, overtaking the Technology, Media, and Telecom (TMT) sector. Companies in the GEM sector are pursuing deals to grow core businesses and diversify into new areas, indicating ongoing confidence in these industries.
Preparing for the Next Wave
Strategic Realignments
To prepare for the anticipated market upturn, companies are re-evaluating their M&A strategies. This includes investing in capabilities that align with evolving market conditions and considering both acquisitions and divestitures to optimize portfolios.
Mitigating Geopolitical Risks
Companies are focusing on localization rather than geographic expansion to mitigate geopolitical risks. This involves targeting sectors with strong market outlooks, investing in vertical integration, and strengthening supply chain resilience.
Alternative Deal Structures
With debt financing becoming less accessible, companies are exploring alternative deal structures such as joint ventures, alliances, and public market buyouts. These approaches can reduce transaction risks and enhance value creation.
Value Creation and Synergies
To offset higher capital costs, companies are setting higher bars for value creation. This includes considering a broader range of synergies, beyond just cost or revenue, to include capital expenditure and transformational synergies.
Conclusion
The M&A landscape in 2024 is marked by a blend of optimism and strategic caution. Companies are preparing for a resurgence in activity by adapting their strategies to meet new market demands and mitigate risks. As the year progresses, the ability to navigate these trends will be crucial for success in the M&A arena.
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