Interview, Fireside Chat
M&A in 2024: Navigating opportunities and challenges
- Deal dialogue levels match the most active historical M&A markets (2021 and H1 2022) despite current transaction volume not yet realizing, with robust dialogue persisting.
- The realization period for a new valuation paradigm is protracted, exceeding the typical six to nine months due to sustained strong earnings and cash flows despite interest rate hikes.
- Confidence in earnings and underlying performance remains the primary M&A driver, with any falter in confidence altering the timeline for recognizing the valuation paradigm.
- CEOs remain determined to advance strategic agendas, portfolio moves, and business growth despite inflation and geopolitical risks.
- A consensus exists among CEOs expecting inflation to decline and interest rates to normalize in the second half of next year.
- M&A activity in natural resources (energy, power, chemicals, metals, mining) is not expected to slow down.
- Large biotech and healthcare M&A is projected to continue driven by strong pharmaceutical cash balances and new molecule development.
- Technology M&A is anticipated to resume in 2024 with increased activity relative to the current period following a substantial valuation shift.
- Private equity sponsors face challenges from high financing costs hindering return generation and valuation alignment between buyers and sellers.
- Private equity pressure to monetize assets will persist due to limited partner demands for capital returns and the recognition that refinancing at lower rates is delayed.
- Private equity activity is expected to return as the valuation paradigm shifts and sellers agree to potentially lower valuations than previous years.
- Private equity deal volume is forecasted to see a time-dependent resurgence, mirroring the post-financial crisis pattern where corporate M&A fills the vacuum first.
- Mega deals exceeding $10 billion are resurging and expected to continue in energy and pharmaceutical sectors due to massive cash accumulation and scale benefits.
- Large public-to-private transactions by private equity and infrastructure funds are expected to continue, building on record activity seen this year.
- Spinoffs and corporate simplifications are projected to continue in 2024 as boards make unilateral separation decisions when economically sensible.
- European M&A cycles are expected to lag the US cycle by approximately six to nine months.
- The M&A-to-GDP ratio is at a record low in the low single digits compared to historical mid-single digits, serving as a fundamental driver for future activity.
- The underlying force of companies seizing opportunities for strategic repositioning when windows exist is expected to remain strong.
- Private equity market recovery is expected to initiate with smaller and midsize asset exits, followed by larger exits later.
- M&A activity is expected to ramp up rapidly once clients enter "risk-on" mode and perceive a window of opportunity.
- US election years are historically down for M&A, suggesting the upcoming US election could impact confidence.
- CEO and board confidence, reliant on future expectations and synergy forecasts, is the primary driver of M&A decisions.
- Interest rate moves, macroeconomic factors, and pandemics are identified as potential derailers of M&A confidence.
- Despite volatility, long-term drivers of the M&A market are expected to persist over long cycles.