Execs Eye An M&A Rebound In 2024

by Ayşe Yüksel Mahfoud and Eric Ramirez

2023 dealmaking started off slow, but the potential for a New Year M&A boom is possible

Q2 2023 marked the fifth consecutive quarter of retreat in global M&A and the longest succession of quarterly declines on recent record. Many experts predicted growth in transaction activity for 2023 compared to the previous year but the market has been slow to rebound. However, opportunities are on the horizon according to 200 global executives involved in cross-border M&A transactions.

Earlier this year, Norton Rose Fulbright and Mergermarket collaborated on a global M&A trends and risks report. 100 C-suite and other top-level executives from multinational companies, 50 from large private equity firms and 50 from major investment banks were surveyed in connection with the report. The respondent group included participants from Africa, Asia, Australia, Canada, Europe, the Middle East, and the US.

The report found that dealmakers forecasted an uptick in global M&A, with North America expected to enjoy the most growth in cross-border activity in 2023 and beyond. 51% of respondents overall expect their appetite for M&A to increase somewhat for the remainder of 2023 and in 2024, with a further 5% saying it will increase significantly, and just a small percentage expect their appetite to decrease.

More than half of the private equity and corporate respondents expected their organizations will be net buyers while a significant majority of investment bankers expected their clients to be net buyers. This has been accurate so far in 2023 as it has been a buyer’s market in M&A. 

Deployment of pent-up dry powder is cited by many across all geographies as a significant factor in increased market activity. Global private equity buyers are predicted as the most active prospective acquirers, and amongst them, respondents believe US private equity firms will continue to lead the charge in the final quarter of 2023 and in 2024. In the US and Canada, 58% of respondents identify the prevalence of private equity dry powder among their top-three drivers of M&A activity in the near term – the highest share for any driver across all geographies.
In Australia and in Europe and the Middle East, the largest shares of votes in both cases are accrued by ESG guidelines (44% and 46%, respectively). ESG is one of the most frequently mentioned themes throughout the report and dealmakers are no longer viewing ESG as risks to be avoided. Instead, dealmakers are searching for opportunities to be at the forefront of the inevitable transition to ensuring environmental and social consciousness. As expected by respondents, ESG initiatives continue to stand front and center across the globe.
In addition to the outbound flow of funds, the US takes the lead as the highest projected growth in inbound M&A activity for the remainder of 2023 and beyond. Attractions of the US market cited by respondents include its size, the digital and physical infrastructure, the quality of targets and financing opportunities. Further stimulus to US inbound M&A is likely to be provided by the Inflation Reduction Act – particularly for clean energy investments.

In Asia, distressed opportunities were cited as the biggest expected deal driver in the year ahead, as many companies are struggling because of the rapid changes in the consumer market post-COVID and the challenging interest rate environment.

63% of respondents identify the technology sector among their top three in terms of highest expected growth in cross-border M&A in 2023 and more than half of the respondents selected life sciences and healthcare as one of their top-three performers.

Supply chain improvements were also recognized as deal drivers. The impact of the pandemic and the recent geopolitical developments have caused uncertainty in the reliability of supply chains and therefore spark eagerness for vertical acquisitions. So far in 2023, add-on deals have represented over three quarters of overall M&A activity in private markets.

2023 has seen an increase in private equity middle market deals (sub $1B) and this is likely to continue into 2024. Historically, middle market deals (sub $1B range) have made up roughly 60% of annual M&A activity by US private equity firms but in 2023 this figure has been near 75% of US private equity acquisitions, according to data provided by PitchBook on its recent US PE Mid-Year Outlook webinar.

Like many other regions, financing conditions in the US and Canada are expected to continue to be tighter through the end of the year and 2024 as 60% of respondents from the US and Canada highlighted financing constraints as a likely impediment to M&A in the year ahead.

In Europe and the Middle East, respondents believe that financing will be stalled by the instability of the debt markets brought on by the recent banking crisis as well as rising interest rates, supply chain challenges and the recent geopolitical tensions. Alternatively, Australia, Africa and Asia are regions that expect financing conditions to stay broadly the same or to improve.

As traditional financing avenues have tightened, respondents predict that cash reserves are expected to see the largest increase in use as we head into 2024. Respondents predicted that many businesses will also have to rely on non-traditional banking sources for their acquisitions in the near term.

Dealmakers should be aware of the obstacles abound on the road to successful M&A in the near term but find comfort that respondents believe none are insurmountable. Local risk, stricter regulatory environments and inflation are weighing heavily on dealmakers’ minds when conducting cross-border transactions, though they are finding some solace, at least, in employing R&W insurance more frequently.

Respondents accurately predicted stricter regulation to be one of the biggest impediments to dealmaking in 2023. 60% of respondents in respect of dealmaking in the US and Canada cited stricter regulation as the leading potential impediment to M&A activity, noting anticipated changes in ESG guidelines in particular.
In the US and Canada, cybersecurity-related regulations are expected to most suppress M&A activity as we approach 2024, identified by 55% of respondents among their top-two selections compared to just 16% cited by Europe and Middle East respondents.

Data protection and privacy regulations, specifically, are also expected to have an impact on dealmaking, particularly in developed regions as this factor is cited most frequently in respect of M&A in Europe and the Middle East (49%), Australia (32%) and the US and Canada (31%).

Antitrust regulations are seen as a significant obstacle to M&A in all regions globally, most notably in the US where 94% of respondents forecast an increase in antitrust-related scrutiny in 2023. Similarly, more than half of respondents cited Asia, the UK and Germany as regions expected to see an uptick in antitrust regulations.

Surprisingly, ESG concerns as a potential impediment to dealmaking was only cited by 13% of US and Canada respondents and only 16% of Asia respondents. However, more than half of respondents in Europe and the Middle East and over a third of respondents for Australia believe ESG issues will suppress M&A activity.

M&A activity in 2023 has remained cautious, leading to selectiveness of counterparties, longer negotiations of deals, more stringent due diligence, and more frequent use of R&W insurance.
However, the prospects remain positive as we near 2024 as most industry experts agree that M&A activity will pick up for the remainder of the year and predict that the major themes in the coming headlines for the M&A market will likely involve one or more of ESG, digital transformation, and supply chain resiliency.

“Read the full M&A trends and risks report here.”

Ayşe Yüksel Mahfoud, Global Head of Corporate, M&A and Securities, and Eric Ramirez, an associate in the Corporate, M&A and Securities practice.