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Ringing in a new phase of M&A: Is your company ready for action?
In 2024, successful dealmakers will be those who strategically navigate megatrends and use transactions for transformation, focusing on speed, talent, and boldness to drive value creation.
Mergers and acquisitions (M&A) faced a challenging environment last year, with hopes of a recovery early in the year thwarted by rising interest rates and challenges of financing. In 2024, we expect dealmaking to pick up remarkably, driven by improved financial markets, significant pent-up demand and supply for deals, and the strategic imperative for companies to evolve their business models. From an industry perspective, we see some important sectoral differences, but all dealmakers must be willing and able to navigate uncertainty.
Dealmakers are eager to move on from the weakest M&A market since the aftermath of 2008. Global deal value has halved over the past two years, from over US$5tn in 2021 to US$2.5tn in 2023. Deal volume declined 17%. As we predicted in our mid-year 2023 M&A outlook, mid-market deals have remained resilient due to easier execution in difficult financial conditions, with dealmakers focusing on smaller, strategic transactions for growth. Megadeals (deals worth more than US$5bn) fell from 150 deals in 2021 to less than 60 in 2023.
Why we expect a recovery
However, there are several compelling reasons to expect M&A activity to rebound significantly in 2024. Financial markets have improved, setting the stage for a revival in M&A activity. Interest rate hikes have stopped, with expectations of US rate cuts to boost market confidence. While valuations are rising, there is still room to run, and the subdued IPO market – with a 30% drop in proceeds from 2022 to 2023 – suggests a potential increase in M&A activity as companies look for alternative exit strategies, especially given the tighter IPO windows expected due to elections in key countries and increased scrutiny of post-IPO performance.
Furthermore, the delay in regular deal flow has intensified the need for transactions, leading to a tipping point in dealmaking with increased buyer demand and a build-up of seller assets. According to PwC’s 27th Annual Global CEO Survey, 60% of CEOs plan to make at least one acquisition in the next three years. According to PwC UK’s Value Creation Transformation Survey, 70% of business leaders expect to use M&A to accelerate the adoption of technology and technology-related processes. There’s significant untapped private capital, with almost US$4tn in ‘dry powder’ and US$12tn of assets under management, indicating a substantial increase in unrealised portfolio value and impending pressure on private equity funds to return capital to investors, likely boosting exit activity. On the corporate side, M&A is becoming more attractive due to the need for rapid adaptation to global megatrends such as digitalisation and decarbonisation.
Companies are rethinking their strategies to achieve scale, access new technologies and talent, and drive growth through acquisitions or refocus on core areas by divesting non-core assets. In this urgent need for strategic transformation, companies see M&A as an essential tool to keep up with the pace of market change and achieve transformation faster.
Taken together, these factors suggest an environment conducive to increased M&A activity, with companies feeling more confident to make significant strategic moves. We expect the M&A markets to rebound significantly in 2024, with a steady increase in activity throughout the year. A series of deals in recent months indicate that this increase in dealmaking may have already begun in some sectors.
“The critical need for companies to transform and innovate business models serves as a catalyst for M&A activity.”
Marc SchmidliPartner, Deals Leader, PwC SwitzerlandGlobal M&A volumes and values 2023 down…
M&A volumes and values fell by 6% and 25% respectively in 2023 compared to the previous year. The number of deals dropped by 20% between the first and second half of 2023. While the data for the second half of 2023 is likely to be understated due to the lag in deal reporting, the pessimistic sentiment among dealmakers in this period was evident. However, deal value improved slightly compared to the first half of the year, mainly driven by two large energy deals (Exxon/Pioneer and Chevron/Hess).
Deal volumes and values, 2019-2023
Click the tabs to view the chart and commentary for each region.
Sources: LSEG and PwC analysis
Global: M&A volumes and values declined by 6% and 25% in 2023 compared to the prior year. Hopes for a rebound early in the year were dashed by rising interest rates and financing challenges, and the number of deals declined by 20% between the first and second half of the year. While the data for the second half of 2023 is likely understated due to the lag in deals being reported, the bearish sentiment among dealmakers which existed during the second half of the year was palpable. However, while the number of deals declined in the second half of 2023, deal values improved slightly over the first half of the year, largely boosted by the two large energy deals discussed earlier.
… but some sectors are already on the road to recovery
Looking at different sectors and subsectors, we can see which areas are already experiencing an uptick in M&A activity. In 2023, deal volumes increased in sectors like aerospace, mining, utilities, pharma, manufacturing, automotive, and technology, with growth potential in sectors such as AI, semiconductors, electric vehicles, biotech, and consumer health. M&A in financial and healthcare services may face challenges, with the latter seeing potential in telehealth and health tech. Consumer sectors, particularly retail and hospitality, may lag due to constrained purchasing power, but a rebound in tourism could boost deals in 2024.
“Dry powder in the amount of almost US$4tn and US$12tn of assets under management puts pressure on private equity funds to return capital to investors, likely boosting exit activity.”
Marc SchmidliPartner, Deals Leader, PwC SwitzerlandA different M&A market to navigate
Amid our positive outlook, dealmakers in 2024 will face very different conditions to those of recent years. They will need to adapt their playbooks accordingly. The M&A landscape will be markedly at odds with pre-pandemic and pandemic times, with changes in how uncertainty, financing, and restructuring are handled. CEOs are now more adept at navigating uncertainties, such as economic volatility and geopolitical tensions, and more willing to take calculated risks in M&A to support growth and transformation. Financing conditions have improved, with private credit funds becoming key players, offering flexible solutions, and holding significant capital to fuel dealmaking. In addition, equity is increasingly being used as a financing currency, reducing reliance on debt.
There’s also a focus on distressed opportunities, with around US$300bn of leveraged loans maturing between 2024-2026, leading to innovative M&A solutions and restructuring. These include refinancing with alternative credit providers, amend-and-extend arrangements, or M&A exits. Credit fund lenders are expected to be active in restructuring, using M&A and refinancing to drive turnarounds. Finally, companies in sectors such as retail and hospitality are restructuring to improve balance sheets, often through the sale of capital-intensive assets.
What’s the 2024 outlook for mergers and acquisitions in Switzerland?
At present, there is no clear indication as to which direction the Swiss M&A landscape will take in 2024. On the one hand, there are various transformational deal opportunities in the market, such as those related to AI and tech-lead, and interest rates are expected to remain at least stable. We also see that M&A has become a crucial growth driver for businesses, enabling repositioning, growth, and long-term success. We expect cash-rich corporates seeking strategic opportunities to lead deal activity, with mid-market M&A dominating and divestitures playing a significant role. On the other hand, the economic outlook for 2024 is rather conservative and could have a negative impact on the M&A landscape.
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Marc Schmidli