{{item.videoDuration}}
{{item.title}}
{{item.text}}
{{item.videoDuration}}
{{item.title}}
{{item.text}}
The M&A journey will continue
Private equity (PE) firms are under increasing pressure to return capital to investors and exit mature investments, while for corporates the strategic imperative for M&A is growing, driven by lacklustre organic growth, technological change, and disruption from AI.
After a challenging 2023, mergers and acquisitions (M&A) continued to face uncertainty and adverse conditions in the first half of 2024. Hopes for recovery and renewed confidence were dashed by a fog of uncertainty and delayed interest rate cuts in the US. By mid-year, global deal volumes were 30% lower than in the first half of 2023. On a more positive note, deal values grew by 5% in the first half of 2024, with 33 megadeals announced, up 22% year-on-year. Thorough preparation and rebuilding confidence are key to reviving M&A activity. We see signs that deal preparation is picking up and as confidence returns, we expect the market and dealmakers to respond quickly.
In January, we wrote that dealmakers were eager to move on from the weakest M&A market since the aftermath of 2008. Global deal value had halved from over US$5tn in 2021 to US$2.5tn in 2023. Deal volume had declined by 17% over the same period. While mid-market deals had remained resilient due to easier execution in difficult financial conditions, megadeals (deals worth more than US$5bn) had fallen from 150 deals in 2021 to fewer than 60 in 2023. Our cautious optimism at the start of 2024 – based in part on unrealised expectations of US interest rate cuts – was met with heightened uncertainty and persistent caution by market participants. As a result, M&A markets experienced a significant slowdown in the first half of 2024.
Looking ahead, several macro factors could restore confidence and boost activity. Although the timing is uncertain, the need for M&A is stronger than ever, driven by pent-up selling pressure, particularly from private equity (PE) firms. On the other hand, the rapid pace of technological change and the disruptive impact of AI make M&A a strategic imperative for companies seeking to grow and reinvent their business models. With low organic growth, companies are turning to M&A to boost revenues in a sluggish economic environment. Preparations for sales and vendor due diligence are increasing, suggesting a potential increase in quality assets coming to market soon. We therefore expect M&A activity to pick up, albeit unevenly across sectors.
The continued delay of deals is increasing the strategic pressure on sellers month by month. Both buyers and sellers need to consider alternative structures such as partnerships, alliances, retention of a portion of the seller’s equity, earn-outs, and other forms of capital structuring to increase chances to execute transactions.
A focus on private equity
Private equity firms are facing a growing need to return capital to investors, exit mature investments, and raise new funds. Although IPO markets have been slow, there’s a cautious return in tech, potentially making IPOs a viable exit for larger companies. In the near term, many will adopt a dual-track approach, planning for both M&A and IPO exits. Optimism for IPO recovery exists, but the 2024 window is narrow due to upcoming elections; and recent disappointing post-IPO performance may make investors favour M&A exits.
In Q1 2024, private capital accounted for 24.1% of deals, up from 20.6% in 2022, with global transacted assets growing by 8% annually over five years, reaching $13.3 trillion in 2023. Despite market turbulence, the largest firms saw double-digit growth, with sovereign wealth funds, family offices, and syndicated bank lending contributing to the abundance of capital for deals, though at a cost.
At present, corporations, rather than private equity firms, hold the advantage as buyers. The agility of cash-rich corporations provides a distinct competitive edge over the PE model, which relies heavily on substantial and costly leverage. Corporates’ involvement in deal activity has grown, but they must act swiftly to fully seize the opportunity. Those who delay may find themselves left behind as PE firms will likely innovate and use creative structures to narrow the gap. It’s only a matter of time before the PE engine gears up again.
“The strategic imperative for M&A is becoming more compelling, generating additional pent-up demand that will be released as uncertainties are resolved.”
Marc SchmidliPartner, Deals Leader, PwC SwitzerlandFour obstacles to clear in 2024
There are several obstacles to overcome for a sustained M&A recovery. While historical patterns provide some guidance, unique anomalies in the current environment distort expectations. Understanding these factors can help dealmakers assess risks and develop effective strategies.
- Interest rates: High USD interest rates have persisted for longer than expected, impacting M&A activity by increasing the cost for funding acquisitions. Although recent rate cuts in some countries suggest that more may follow, the current high rates are putting pressure on the potential for value creation of deals.
- Valuations: The gap between buyers’ and sellers’ valuation expectations remains wide, with strong assets trading at high multiples and setting unrealistic expectations for other assets. The buoyant stock market, partly driven by AI optimism, complicates the situation. The combination of high valuations and uncertainty is holding back M&A activity.
- Elections: Political uncertainty in major economies is delaying corporate decision making. Upcoming elections in the US, UK, and other countries are adding to this uncertainty, making markets and central banks cautious about significant moves, also in terms of interest rate changes.
- Geopolitics: Ongoing global tensions, such as the wars in Ukraine and the Middle East, as well as strained US-China relations, contribute to an uncertain geopolitical climate, further complicating the M&A landscape.
Global M&A volumes overall down in the first half of 2024 …
In January, dealmakers anticipated a rise in M&A activity due to expected interest rate declines. However, some central banks kept rates high, stalling momentum despite some early promising megadeals. By mid-year, global deal volume had fallen by 30% compared to the first half of 2023, to just over 21,000 deals. This decline continued a trend from 2022 and contrasted sharply with the record activity in the second half of 2021, which saw nearly 34,000 deals valued at $2.7tn. Nevertheless, deal value grew by 5% to $1.3tn in the first half of 2024, driven by significant transactions in the technology and energy sectors.
Deal volumes and values, 2019-H1'24*
Click the tabs to view the chart and commentary for each region.
Note: To facilitate meaningful comparisons with prior half-yearly periods, the data for the first half of 2024 (H1’24*) covers the first five months of the year, extrapolated to represent a six-month period. Refer to the “about the data” note below for further information.
Sources: LSEG and PwC analysis
Sources: LSEG and PwC analysis
“The critical need for companies to transform and innovate their business models is acting as a catalyst for M&A activity.”
Marc SchmidliPartner, Deals Leader, PwC Switzerland… amidst strong deal value in the Americas
In the first half of 2024, Asia Pacific saw a 23% drop in deal volume and a 35% decrease in deal value compared to the first half of 2023. China experienced a 29% decline in volume, while Australia, Japan, India, and South Korea recorded smaller declines. Deal values in India increased by 1% despite a 24% drop in volume, but with an average of $38m, deal size was below the five-year average of $81m.
EMEA deal volumes decreased by 31% due to challenging macroeconomic and geopolitical conditions. Deal values saw a slight 1% increase but remained below levels of 2020–2022 and pre-COVID-19.
Deal volumes in the Americas decreased by 34% in the first half of 2024 due to challenging macroeconomic and geopolitical conditions. However, deal values rose by 29%, driven by renewed megadeal activity in technology and energy. The United States accounted for 24 of the 25 megadeals in the region, marking the highest megadeal activity since 2021.
Silver linings for dealmakers
As the M&A market remains hesitant, we believe there are some notable indicators that can help guide dealmakers through uncertainty. In addition to the above-mentioned impulses we expect to come from the PE sector, these are:
Debt and financing for M&A
M&A financing has improved over the past two years. The US and European high-yield bond and leveraged loan markets are on track to almost double the amounts raised in 2023. In the first half of 2024, $151bn of high-yield bonds were issued, compared to $176bn for the whole of 2023, while $359bn of leveraged loans were issued, compared to $379bn in 2023.
The energy transition
The energy transition presents significant M&A opportunities as investors focus on achieving net-zero targets. Innovative business models and significant public and private sector investments are essential. Government policy changes and project commitments will create large pools of capital, despite potential constraints from rising debt and interest rates. The scale of investment requirements positions private capital as vital, with new funds targeting the energy transition. This will drive mergers, acquisitions, joint ventures, and partnerships to help companies secure energy supplies and transform their operations.
Transformation of operating and business models
Companies are transforming by evaluating their portfolios to identify gaps in capabilities, talent, and technology, and by divesting non-core assets. Synopsys’ acquisition of Ansys aims to combine capabilities for strategic growth. The Home Depot’s purchase of SRS Distribution intends to drive growth with professional customers. Unilever’s and Sanofi’s decisions to divest certain businesses highlight a trend of large carve-outs following portfolio reviews, which is likely to continue among large companies.
Restructuring and distressed M&A
Higher interest rates and challenging market conditions are fuelling restructuring activity. Sectors such as automotive, retail, and certain property classes are particularly affected, with distressed M&A expected to increase in the second half of 2024. This creates opportunities for acquisitive companies to fill skills gaps and expand geographically.
The resurgence of megadeals
33 megadeals were announced in the first five months of 2024, an increase of 22% year-on-year. Most of the activity took place in the US and in the technology and energy sectors. In energy, the shift to renewables is driving consolidation, while in technology, advances in AI are spurring deals. A broader market upturn could follow if megadeals extend beyond these sectors.
What’s the outlook for M&A in Switzerland for the rest of 2024?
The outlook for mergers and acquisitions (M&A) in Switzerland in the second half of 2024 appears to be partly robust, driven by a combination of favourable economic conditions and strategic corporate initiatives. Switzerland’s stable political environment and strong regulatory framework continue to make it an attractive destination for both domestic and international investors. M&A activity is expected to increase in key sectors such as pharmaceuticals, technology, and financial services, fuelled by the need for innovation, consolidation, and expansion into new markets. In addition, the ongoing digital transformation and sustainability trends are encouraging companies to acquire complementary businesses to strengthen their competitive edge. Despite potential global economic uncertainties, Switzerland’s resilient economy and investor-friendly policies should maintain a positive M&A climate in the second half of the year.
{{filterContent.facetedTitle}}
{{contentList.dataService.numberHits}} {{contentList.dataService.numberHits == 1 ? 'result' : 'results'}}
{{contentList.loadingText}}
{{contentList.loadingText}}
Contact us
Marc Schmidli