The deal market in 2024 is likely to see an increase in activity following the challenges of 2023. The rate of inflation has slowed down and could even begin to decrease, interest rates have stabilized (though they’re unlikely to return to pre-pandemic levels) Private credit is now available to finance more types of deals, and traditional equity markets have gained ground, achieving record highs.
However, a range of factors will continue to hinder the process of negotiating deals. The first reason for the slowdown in M&A activity is due largely to capital constraints. The economic landscape has changed because of rising interest rates, which makes it less appealing to invest in growth through acquisitions and new investment. This is especially true for the US which accounts for a significant part of the global deal value with two thirds of the top 100 deals of 2021 being either a US company or the target.
In addition, increased scrutiny from regulators is limiting M&A. Concerns about antitrust, national security and other issues are putting greater scrutiny on larger deals and limiting the potential for industry consolidation. The trend is expected to continue into 2024.
Third, the focus of generative AI (GIA), will be driving more M&A to develop capabilities. M&A will be used by companies that do not have the time or expertise to build GIA capabilities internally. Additionally, the environmental, social, and governance (ESG) agenda is continuing to gain traction with CEOs. They are increasingly looking to bolster ESG initiatives through acquisitions that will allow them to achieve their earnings, growth, and valuation goals.