M&A’s 2024 Comeback: A Buyer’s Market?

It’s taken longer than predicted, but a steady interest rate environment is laying the ground for an M&A recovery in North America and Europe. Revised expectations offer attractive opportunities for early buyers – just one of the ways in which events of the past few years will influence the shape of 2024’s deals.

By Vito Sperduto, Larry Grafstein , Benjamin Mandell & Mark Rushton
Published January 11, 2024 | 20 min read

Key Points

  • Stability on interest rates may provide the confidence to fuel an upswing in North American M&A activity in the first half of 2024.
  • Europe has seen a sharper dip, with well capitalised corporates increasingly seeing the current market environment as a real opportunity.
  • With signs that sellers’ expectations have shifted downwards, early movers may find attractive opportunities.
  • Competition and antitrust authorities will remain active, but court wins have bolstered the biggest corporates.
  • Healthcare, tech and energy will continue to dominate, with private likely to trump public in resilience against macroeconomic pressures.

View audio transcript

What’s the M&A outlook for North American markets?

Vito Sperduto: It’s looking like the overall M&A market globally will likely be down versus 2022 in the 18 to 20% range, from a dollar volume perspective. The U.S. seems to be leading the cause: we are likely to be down 8 to 9%, and certainly we’ve seen some of the larger deals in the market happen in the second half of the year.

Pundits always talk about the fact that in an election year, there’ll be a decline in M&A activity. I think the counterbalance is pent-up demand going into the year. We’ve gotten some indications from the Fed that they seem to be done with rate hikes. We always talk about the fact that we need a strong level of confidence to execute M&A transactions. I think that’s providing some strong enthusiasm, especially for the first half of 2024.

Ben Mandell: In Canada we narrowly avoided a technical recession at the end of Q3, and GDP growth has slowed quite a bit more. If we think about M&A activity, things have picked up a little bit, but remain challenging. We’re optimistic that it will continue on the upswing as we move into the first half of 2024: I’m not sure it’ll be a straight path, but hopefully stability on the rate front will support that.

Larry Grafstein: I don’t think we’re necessarily going to see a return to the near-euphoric environment that we had in 2021. On the other hand, I think we all agree that you can have a very healthy deal market, even with interest rates materially higher than they were for many years. But that makes deals in some ways harder to do, and there’s a higher burden on companies to decide that a deal makes sense.

"You can have a very healthy deal market, even with interest rates materially higher."

Larry Grafstein, Deputy Chairman, Global Investment Banking

Sperduto: As we look at the dialogues that are happening right now, they’re starting to gain steam, they’re starting to become more than a desktop exercise.

How does the European picture differ?

Sperduto: In Europe, M&A volumes are probably going to be off by 25 to 28% year over year. Obviously some geopolitical challenges there caused a greater pause than we’ve seen in other parts of the globe.

Mark Rushton: It has been a challenging time in Europe and that is a risk to M&A activity, especially considering the uncertainty around supply chains and the possibility of heightened fuel costs. You’re seeing that lag effect, where there are probably more green shoots of recovery in North America, and that will permeate through to Europe in due course.

We expect corporate deals in Europe to be broadly in line with pre-Covid levels. We see that PE sponsors are unwilling to participate in sale processes where there is a clear strategic angle for corporates to play. That means there is a lack of competition for certain assets. Those corporates with a strong balance sheet are increasingly viewing the current environment as a real opportunity.

What are the global trends to look out for in 2024?

Rushton: 2023 was the busiest year for activism in the European market. Globally, approximately 50% of activist campaigns relate to M&A. That’s a dialogue we’ve been having with corporates over the last 12 months especially.

Sperduto: There’s going to be a premium to accessing the market earlier. As good transactions come up, the first ones that hit that market are going to get the advantage in terms of the available financing.

"As good transactions come up, the first ones that hit that market are going to get the advantage."

Vito Sperduto, Global Head of M&A

Mandell: In 2021 in Canada about 20 tech companies went public. So far, seven of those have been taken private. A lot of those valuations were below the IPO price. That indicates sellers’ expectations around value have started to shift. If you’re prepared to be active and start to pursue growth, there’s real opportunities for you as a buyer.

Grafstein: We’ve seen a related phenomenon in the U.S. Certain sponsors who might’ve sold a little bit of their ownership as part of the IPO, but still own a big chunk of the public company, are thinking about bringing in a partner to share the ownership, in a way that doesn’t trigger change of control on any debt that’s been raised.

That leads to a related point. The fact that debt will be more expensive to replace in the next few years is a spur to consolidation among corporates. A combined balance sheet is often a healthier balance sheet, and synergies can help offset a rising cost of debt.

Sperduto: With the slowdown, you have companies waiting longer to go public. And so you’ve got some assets that have grown significantly in private equity portfolios. These companies are getting larger: sometimes there’s less alternatives from an exit perspective, because it’s a very sizeable asset that needs to be purchased.

"Sellers’ expectations around value have started to shift."

Ben Mandell, Managing Director, Head of Canadian M&A

How will regulation influence M&A patterns?

Rushton: In the UK there’s been a lot of focus on the Competition and Markets Authority, and its stance on a number of transactions, such as the Activision Blizzard deal. Where a lot of issues come about is when different regulators across the world have different stances, and that can be used by companies to drive tension.

Sperduto: If you’re a larger player, if you’re Microsoft, you can litigate the fix and get your transaction approved. I think the agencies globally have accomplished what they wanted to do, which is to make this more of a front-of-transaction discussion. The larger players are more emboldened based on wins in court: is that going to cause a greater skew, where the big get bigger and the small and medium-sized guys stay where they are?

Grafstein: Looking forward, we don’t expect any significant change in the attitude of competition and antitrust authorities. We think they’ll continue to monitor transactions, increase filing requirements and not hesitate to challenge deals, which is a factor that boards and management teams have to consider.

"When different regulators across the world have different stances, that can be used by companies to drive tension."

Mark Rushton, Managing Director, M&A, Europe

What sectors are set to be most active?

Sperduto: Over the last 12 months, healthcare, technology and oil and gas account for over 50% of the deal activity on a dollar volume basis. We expect those sectors to continue to be dominant.

Mandell: In the Canadian energy sector, consolidation continues to play out. For a number of years you’ve had foreign firms largely exiting positions, and evolving government regulation will continue to have an impact on the types of bets that companies are willing to place.

Typically you think about infrastructure investments being around toll roads, pipelines and airports, but we’ve started seeing a lot more investment from Brookfield and other large infrastructure buyers in fiber networks and cell towers.

Rushton: Over the last quarter of 2023, around half the UK take-private situations related to consumer companies. This is a sector that’s clearly been hit by the macroeconomic headwinds. The public markets have yet to look fully through these headwinds, whereas bidders (both strategics and sponsors) now have greater confidence and are willing to pay a takeover premium. We see that continuing into 2024, not only in consumer but more broadly.

Mandell: In Canada we’re so heavily influenced by the pension plans, which over a period of time will account for about a third of Canadian outbound M&A. It feels like they’re being more selective in the industries they choose to focus on, and I think that will continue, certainly in the next couple of quarters.

Our Experts

Vito Sperduto
Vito Sperduto
Global Head of M&A
Larry Grafstein
Larry Grafstein
Deputy Chairman, Global Investment Banking
Benjamin Mandell
Benjamin Mandell
Managing Director, Head of Canadian M&A
Mark Rushton
Mark Rushton
Managing Director, M&A, Europe

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