Blue skies ahead – fivehundred

After two subdued years, global M&A activity is showing signs of recovery. Though large-ticket M&A and private equity deals have been suppressed, Q1 2024 recorded the highest number of large deals per quarter in nearly 24 months¹.

Market sentiment is turning positive as macroeconomic conditions improve. There have been spikes, but the inflation that soared in 2021/22 and spooked investors and business leaders now seems to be heading in the right direction. Interest rate cuts have been delayed, but officials have indicated they’re on the cards if inflation rises have peaked, which will also provide reassurance.

There will always be global events that affect confidence – the recent geopolitical tensions in the Middle East are just one example. But overall, we expect a significantly better deal-doing environment later this year, and an increase in M&A volumes.

We’re not alone in this view. At our recent M&A Summit, when polled 59% of the market experts, intermediaries and investors attending indicated they believe we’ll see an increase in deal volumes by the end of 2024. Although it’s taken longer than many expected, there’s definitely a feeling that the market is going to heat up again.

The market outlook

It’ll be a very different market to that of 2021. As activity picks up, we’ll see a smaller number of deals, but they’ll be high-value ones, as opposed to a larger number of low- to mid-value ones like we saw during the pandemic.

Buyers have had time during the downturn to do more thorough due diligence and identify high-quality targets. Although venture capital funds and private equity firms are under pressure to deploy dry powder, we’ll see more targeted acquisitions of assets that fit their strategies, rather than the backing of multiple horses which we saw in 2021.

We also expect to see longer negotiation periods on deal terms. During the pandemic there was a real push to get deals done, and high multiples were more easily accepted. Now, there’s still a mismatch in buyer/seller expectations, with companies that have held off selling to wait for better conditions wanting the best terms possible.

This may change as private equity firms that need to realise liquidity for their investors (especially with anticipated fundraising aims), and companies with dwindling cash reserves or leaders keen to sell to focus on other strategic imperatives, come under pressure. We’ll likely see parties in some cases forced to the negotiating table and distressed assets coming up for sale.

Another trend we’ve seen recently is antitrust and foreign direct investment concerns becoming more common in deals. There’s a lot more scrutiny now than the last time we had a large market upswing, and all parties involved in M&A will want to make sure they understand what’s required of them in advance of any negotiations. For those doing higher enterprise value and cross-border deals, regulator activity is now perceived as business as usual, and these transactions are typically building regulatory considerations into the process.

Active sectors

Companies in the technology, life sciences and clean energy sectors are currently receiving a lot of interest, and this is likely to continue. Resilience is a big theme. Acquirers are identifying assets that will help future-proof their business models and help them adapt to megatrends like artificial intelligence (AI), clean energy and data infrastructure.

Given recent technological developments, AI is especially high on target lists for the C-suite. We’re not seeing a lot of M&A involving AI businesses at the moment. But given the interest in the sector, and as businesses with promise mature, you can see a pipeline of activity developing for 2025 and 2026. Acquirers would do well to familiarise themselves with the due diligence areas required in advance, especially as M&A in this sector will be the fast-track to developing their own generative AI platforms.