Merger and acquisition (M&A) activity is poised to experience a significant uptick in the upcoming year. Borrowing is expected to become more accessible, and companies appear undeterred by antitrust regulators’ efforts to block deals. This surge in M&A activity is driven by various factors, including favorable market conditions and growing confidence among businesses.
Positive Signals in the M&A Landscape
Michele Cousins, the head of leveraged capital markets for the Americas at UBS, highlighted the increasing interest in M&A deals. She emphasized that clients are actively initiating discussions, and there is a noticeable momentum in launching new processes. One key contributor to this trend is the recent strength in financial markets and the reduced volatility, which has bolstered companies’ confidence in pursuing M&A opportunities.
The year 2023 concluded with several substantial M&A transactions, underscoring the growing enthusiasm for deal-making. Notable among these deals was Bristol Myers Squibb’s planned acquisition of Karuna Therapeutics for a staggering $14 billion. This transaction closely followed Abbvie’s agreements to acquire both Cerevel Therapeutics for $8.7 billion and ImmunoGen for $10.1 billion. Furthermore, Nippon Steel’s $14 billion acquisition of US Steel marked another substantial deal.
The energy sector also witnessed remarkable M&A activities, particularly with Exxon Mobil’s $60 billion acquisition of Pioneer Natural Resources and Chevron’s $53 billion purchase of Hess Corp. Despite these impressive transactions, the total value of M&A and related deals for the year fell by approximately 25% to $2.7 trillion, according to Bloomberg data. This decrease represents the lowest annual total since 2013, when deal values failed to surpass the $3 trillion mark.
Upcoming Trends: Semiconductors, Cybersecurity, and More
Looking ahead to 2024, experts predict a resurgence of M&A activity, with particular focus on the semiconductor and cybersecurity sectors. Laurence Braham, UBS global co-head of technology investment banking, suggests that companies previously less active in M&A may start exploring opportunities as they become more confident in their businesses. Cybersecurity, in particular, is expected to be a vibrant area within the software ecosystem, driving an increase in deal activity.
Despite trade tensions between China and the United States, there is a sense that the sentiment surrounding potential deals is improving. China’s efforts to attract more foreign investment are contributing to this shift in perception. Consequently, experts anticipate heightened M&A activity in the semiconductor space.
Private Equity’s Role in the M&A Surge
Private equity firms, holding a substantial $2.6 trillion in “dry powder” (capital available for investment), are poised to play a more active role in M&A in 2024. This comes after a year where buyout firms reduced their spending on acquisitions by 36% compared to the previous year. Challenges related to securing debt financing and disagreements with sellers over pricing hindered private equity’s M&A activity in the preceding year. However, given the desire for capital return among limited partners (LPs) and the ample liquidity in the private equity landscape, expectations are high for increased activity in 2024.
PwC’s Outlook: Closing Valuation Gaps
Consulting firm PwC supports the outlook of an M&A surge in 2024. It highlights the narrowing valuation gaps between sellers and buyers, particularly for deals of moderate size. This convergence in valuation expectations provides additional grounds for optimism regarding an upturn in dealmaking activity in the coming year.
Bottom-line: The stage is set for a notable surge in M&A activity in 2024. Factors such as improved borrowing conditions, increased confidence among businesses, and private equity’s readiness to deploy capital all contribute to this optimistic outlook. As various sectors, including semiconductors and cybersecurity, gear up for increased dealmaking, the M&A landscape appears poised for significant expansion in the near future.
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