Markets are primed for a revival in mergers and acquisitions (M&A) in 2024 following the worst performance in almost a decade for deal-making in 2023.
Equity and M&A experts believe that, after a year beset by volatile markets and rising interest rates, 2024 offers improving conditions for takeover deals and corporate mergers.
“Capital markets were not as open or freewheeling, and 2023 did not happen the way we thought it would,” said Tom Miles, Head of Americas M&A at Morgan Stanley.
“The market forces are in place that make an eventual return inevitable. It’s not a question of if but when.”
One piece of the M&A jigsaw that was largely missing last year was private equity (PE) firms. These players use leveraged buyout methods to take poorly performing publicly traded companies private. The goal is to exit via an IPO or sell off the assets at a profit.
Pitchbook analyst Tim Clarke noted how higher interest rates made it more costly for PE firms to engage in deals.
“PE’s share of M&A has no doubt been constrained by reduced access to leverage,” he said. During 2023, PE involvement was the lowest total recorded going back to 2005.
Overall volumes of M&A dropped to $2.4 trillion in 2023, down from $3.1 trillion in 2022 and $5.2 trillion at its 2021 peak.
But analysts at Morgan Stanley expect both corporate and PE deal-making to be stronger in 2024 after the fourth-quarter rally on equity markets in 2023.
“Corporate balance sheets are strong, financing markets are improving and CEO confidence, which is closely correlated with M&A activity, is climbing,” said Miles.
Which sectors, then, can investors expect to lead this increase in M&A activity. There’s agreement here on three sectors that appear ripe for takeovers to flourish in 2024.
Technology — Artificial Intelligence (AI)
Throughout the latter half of 2023, it has become clear that AI will be a major market theme in 2024 and beyond. The burgeoning technology is being identified through growing numbers of potential use cases as the most important technological advance in a generation.
Additionally, there is no shortage of start-up companies being pursued for partnerships with the Mega Techs. Could this be the year that sees Microsoft (NASDAQ:MSFT) make an offer for OpenAI, with which it already has a major investment…
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