PwC: The M&A starting bell has rung. Are you ready?
We are hearing the starting bell sounding for an upswing in M&A activity, signalling an end to one of the worst bear markets for M&A in a decade.
By PwC
We are hearing the starting bell sounding for an upswing in M&A activity, signalling an end to one of the worst bear markets for M&A in a decade. Whilst the strength and speed of the recovery remain uncertain due to lingering macroeconomic and geopolitical challenges, we believe we have reached a tipping point. We expect the M&A markets to embark on a new upward trajectory, with a steady increase in activity as the year progresses. Indeed, a flurry of deals in the past few months suggests that this rise in dealmaking may already have started in some sectors.
Three main factors underline our newfound optimism that we are entering a new phase of dealmaking in 2024: first, the recent improvement in financial markets, spurred by decelerating inflation and expected reductions in interest rates; second, the pent-up demand for (and supply of) deals; and third, the pressing strategic need for many companies to adapt and transform business models that is the very essence of dealmaking.
The M&A market is entering a new phase in 2024 that will differ from prior ones. The upturn will almost certainly be more measured than the surge of dealmaking activity which occurred during late 2020 and in the record-breaking year of 2021. Dealmakers will be facing very different conditions in 2024 to the past few years and will need to adapt their playbooks accordingly. For example, although credit markets have reopened, financing is more expensive than it has been for a decade. The higher cost of capital will put downward pressure on valuations and require dealmakers to create more value to deliver the same return as before. As the wider macroeconomic and geopolitical landscape remains uncertain, dealmakers that are able to assess risks and plan for different scenarios will be more confident taking actions than those who may be waiting for greater clarity to arrive.
“Don’t let this M&A upturn take you by surprise. It’s coming, and when it does, it won’t be like ones we have seen in the past. Deal returns will be under greater pressure, and the companies that ultimately come out on top will be those that can demonstrate strategic value, are well prepared and can move fast,” says Brian Levy, Global Deals Industries Leader, Partner, PwC US.
From an industry perspective, we are seeing some important sectoral variations: the M&A rebound has already started in energy, technology and pharma, for example, whereas other sectors – including banking and healthcare – remain slower, mirroring the broader market conditions. Many companies in sectors such as retail, real estate and construction are still recovering, or are in restructuring mode, creating potential opportunities for M&A.
Overall, we believe successful dealmakers will be those who prioritise strategy and assess the impact of the megatrends – such as technological disruption (including the rise of artificial intelligence), climate change and demographic shifts – on their business models and who are able to use transactions to take steps along their transformational journey. Key elements to drive value creation in 2024 will be a need for speed, a focus on talent and the willingness to be bold.
Click here to read PwC’s full Global M&A Industry Trends report