Navigating 2024’s M&A opportunities and challenges
By Merlin Piscitelli, Datasite Chief Revenue Officer, EMEA for Technology Dispatch (5,000 UVPM)
Following challenging years in 2022 and 2023 brought on by tighter financing costs, market volatility and the lingering impact of the COVID-19 pandemic, mergers and acquisitions (M&A) are showing promising signs of recovery.
Rise in deal kick-offs signals optimism
New global deals launched on Datasite, which facilitates about 14,000 new deals annually, rose 6% in the second half of 2023, compared to the previous year, suggesting a positive shift in momentum. These figures, representing deals at their inception, rather than announced, offer a glimpse into the potential resurgence of M&A activity in the coming six to nine months.
Still, dealmakers are proceeding cautiously, signalling a preference for quality over quantity. The data from Datasite, which shows a decline in completion rates for deals from 49% to 45% in 2023, also indicates there is more scrutinizing, with longer and more thorough due diligence processes.
M&A outlook by sector
M&A activity is expected to rise in specific sectors which are poised for growth. In particular, the defence and technology sectors are expected to thrive, driven by demands for sustainability, innovation and wartime defence, leading to rapid innovation.
On the other hand and despite growing interest, renewables are expected to pull back. Though energy deal activity rebounded in 2023, with global sell-side deals up 17% in the second half, compared to the same time in the prior year, costs and valuations are still high, so a retreat in activity in 2024 is likely in order.
While technology, media and telecoms (TMT) deal kick-offs dipped 5% in 4Q2023, the sector is set for a comeback, fueled by transformational technology-focused deals. Additionally, life sciences and biotech may see increased dealmaking, driven by growing consumer momentum behind solutions for ageing populations, longevity, and innovation. Industrials also look set for a revival this year, with a healthy 7% increase in 4Q 2023 deal kickoffs on Datasite.
Regional M&A trends
Regionally, several green shoots are also emerging. A year-over-year 2% rise in 4Q 2023 Americas deal kickoffs on Datasite, driven by a spike in energy activity, may signal the beginning of a larger comeback in 2024. And on the other side of the pond, EMEA continues to roar forward, posting a 13% year-over year increase in 4Q 2023 deal kickoffs on Datasite, fuelled by the industrial and consumer sectors.
Economic triggers ahead
Yet, while 2024 holds promise, several macroeconomic factors, including inflation, employment trends, elections and regulatory changes, may come into play to disturb M&A. With elections scheduled in both the UK and the US in 2024, coupled with favourable interest rates, dealmakers might find themselves adopting a cautious approach, with many likely to play the waiting game.
However, for some in-demand sectors, the show must go on. The increasing demand for digitisation and technological innovation is expected to continue to drive M&A, especially investments in climate tech and cleantech, which totalled over $31 billion between 2019-2021.
Additional areas of investment interest include artificial intelligence (AI), which is expected to affect not only the kinds of deals being done but also how deals are managed, especially generative AI’s ability to streamline various aspects of the dealmaking process. In fact, when it comes to productivity and speed, AI is a top item on dealmakers’ agendas. In fact 42% of 500 global dealmakers identified productivity as the most significant benefit of using AI, with expectations of accelerating deal timelines by 50%.
However, incorporating AI in M&A is not without challenges. Over 35% of dealmakers cited data security and privacy concerns as the primary obstacle. Nevertheless, collaboration between industry players and governments is likely to facilitate greater AI adoption, making it a focal point throughout 2024.
Preparedness and positive momentum
Now that the dust has settled on 2023, it’s clear that to succeed in M&A in 2024, a focus on deal preparedness and readiness will be crucial. Dealmakers who take calculated risks, supported by stronger preparation time and precise due diligence processes are more likely to succeed.
Uma Rajagopal has been managing the posting of content for multiple platforms since 2021, including Global Banking & Finance Review, Asset Digest, Biz Dispatch, Blockchain Tribune, Business Express, Brands Journal, Companies Digest, Economy Standard, Entrepreneur Tribune, Finance Digest, Fintech Herald, Global Islamic Finance Magazine, International Releases, Online World News, Luxury Adviser, Palmbay Herald, Startup Observer, Technology Dispatch, Trading Herald, and Wealth Tribune. Her role ensures that content is published accurately and efficiently across these diverse publications.