Panel, Conference Presentation
M&A: Moving On and Up | Milken Institute Global Conference 2024
Milken InstituteRomaine Bostick, Anu Aiyengar, Andrew Bednar, Ron Eliasek, Andrea Guerzoni, Alan Tannenbaum
- M&A market activity has shown resilience compared to the dormant IPO market of 2022–2023, with deals exceeding $1 billion increasing by 26% in the last 12 months.
- Market size projections estimate the total M&A market for 2024 at over $1.5 trillion, falling short of a $5 trillion recovery but indicating significant volume.
- A survey of 1,200 CEOs and investors reveals an uptick in confidence, with 71% of respondents considering divestment, spins, or carve-outs to reignite market momentum.
- In the first four months of the year, 20 transactions exceeding $10 billion have been recorded, contrasting with the near absence of such large deals in the prior year.
- Take-private transactions have increased approximately 25% year-over-year, driven by valuation normalization, stable credit availability despite higher costs, and a mismatch between public and private valuations.
- Private equity deal volume reached nearly $80 billion in April of the current year, marking a seasonal pickup after a muted 12-month period.
- Approximately 28,000 portfolio companies are currently awaiting exit strategies, creating a significant pipeline despite high interest rates.
- Cross-border M&A remains muted, with volumes dropping to less than 25% of the total market from over 35% a decade ago due to regulatory uncertainty and geopolitical tensions (e.g., conflicts in Ukraine and Israel).
- U.S. equities represent approximately $47 trillion of the $110 trillion global equity market, drawing significant foreign investment and encouraging UK and European firms to list or merge with U.S. entities to access premium valuations and liquidity.
- Financing conditions have stabilized but remain volatile, prompting a higher percentage of deals to utilize all-stock or mixed stock-and-cash structures to mitigate financing risk.
- Private equity firms face a 300 basis point increase in funding costs (average LBO interest rates exceeding 10% last year vs. 7% in prior decades), forcing a shift from 70% debt/30% equity to over 50% equity in capital structures.
- To maintain returns in a high-rate environment, investors anticipate accepting 15–18% Internal Rates of Return (IRR) rather than historical 20% targets.
- Antitrust and regulatory scrutiny, exemplified by the prolonged reviews of Microsoft/Activision and Broadcom/VMware, has created a "chilling effect" on large tech acquisitions, increasing legal costs and retention risks for buyers.
- The "build versus buy" analysis is largely obsolete outside of core technology, with companies prioritizing acquisitions to rapidly address AI integration and avoid losing market position to faster competitors.
- Over 50% of S&P 500 companies mentioned AI in earnings calls, up from 10% three years ago, with M&A increasingly used to acquire AI talent and technology rather than build it internally.
- Structural shifts in capital markets, specifically the dominance of passive investing (50%+ of market), are creating liquidity dislocations and complicating IPO roadshows, contributing to the decline in the number of public companies over the last 20 years.
- Private equity firms are deploying creative exit strategies beyond traditional sales, including continuation funds, partial monetizations, evergreen IPOs, and strategic mergers between portfolio companies.
- The "dry powder" available to private capital strategies exceeds $4 trillion (combined with Fed/ECB cash reserves and non-bank balance sheets), surpassing the combined GDP of Germany and Japan.
- Geopolitical fragmentation is creating two distinct investment blocks (e.g., U.S./UK/Europe vs. China/Russia), reducing cross-border flows but increasing activity within allied "friend-shoring" networks.
- Forward-looking statements suggest the M&A market will not see a sudden "vertical liftoff" but rather a gradual runway takeoff expected to mature between 2025 and 2026 as financing conditions normalize.
- Strategic logic is superseding financial engineering, with buyers and sellers increasingly focused on portfolio rationalization, supply chain resilience, and hedging currency/geopolitical risks rather than simple arbitrage.