Français
DEVLHON Consulting decrypt : Mergers and Acquisitions Market Recovery: Forecasts and Perspectives
A Promising Start of the Year Followed by Uncertainties
The high expectations for a resurgence in mergers and acquisitions (M&A) activity in January quickly gave way to rising uncertainties. This climate led to a significant decrease in M&A transactions in the first half of 2024. What are the causes of this uncertain situation, and more importantly, how quickly can it dissipate? We have identified key macroeconomic factors and market anomalies that are essential for restoring confidence and fostering a rebound in M&A activity.
An Inevitable but Uneven Recovery Across Sectors
It is certain that M&A activity will rebound, although this rebound will be faster in some sectors than in others. The need to conduct transactions remains strong despite the uncertainty of the timeline. Every month without transactions increases the pressure on the economic and strategic fundamentals underpinning these deals. The low M&A activity over the past two and a half years has not met the demand, particularly in the private equity (PE) sector. Moreover, companies are turning to M&A to accelerate their growth and reinvent themselves in a dynamic environment marked by innovations such as artificial intelligence (AI).
Growing Pressure to Sell
Many portfolio companies are ready to be sold. At the beginning of the year, PE funds held over 27,000 portfolio companies worldwide, about half of which have been held for over four years, reaching the expected holding period before an exit. The pressure to sell increases over time, especially as investors demand returns on investments.
Companies and M&A
Companies are focusing on M&A to grow and transform in an uncertain environment. Well-thought-out M&A strategies allow for optimizing asset portfolios by acquiring appropriate capabilities, talents, and technologies or by divesting non-strategic assets.
The Role of AI in M&A
AI, especially generative AI, is a major catalyst for transactions. It disrupts businesses and sectors, creating cost savings and opening up new revenue streams. Companies must reevaluate their strategies in the face of this technological wave, which could lead to mergers and acquisitions, partnerships, alliances, and other innovative relationships.
The Need for External Growth
Macroeconomic conditions and monetary policies create an environment of low economic growth. To overcome this, companies can turn to M&A and implement external growth strategies.
M&A Market Outlook and Realities
In January, the outlook was promising with stable interest rates. However, the persistence of high rates dampened this initial momentum. In the first half of 2024, transaction volume fell by 14% compared to the second half of 2023, although transaction value was maintained thanks to mega-deals in the technology and energy sectors.
Transactions involving financial sponsors decreased by 18%, while corporate transactions fell by 12%. Large transactions in the technology and energy sectors helped maintain transaction value.
Preparing for a Recovery
Uncertainty factors such as interest rates, high valuations, political elections, and geopolitical tensions continue to influence the market. However, positive signs like increased seller activity and the preparation of new transactions indicate a possible recovery.
Conclusion
Despite the current uncertainty, preparation and restoring confidence are essential for the M&A market recovery. Actors must be ready to act quickly as soon as the context permits. The strategic need for mergers and acquisitions is imperative, and companies must remain vigilant and ready to seize opportunities when conditions improve.
