The 2024 deal market is likely to witness an increase in activity following the challenges of 2023. The rate of inflation has slowed down and could even be on the verge of declining and interest rates have stabilized (though they are unlikely to be back to pre-pandemic levels), private credit is becoming available for a variety of deals and traditional equity markets have recovered lost ground, with record-breaking highs.
However, a range of things will continue to hamper deal-making. The slowdown in M&A is largely due to capital limitations. The economic environment has changed because of rising interest rates, making it less appealing to invest in growth through acquisitions or new investment. This is especially applicable to the US that accounts for a substantial portion of global deal valuations as well as two-thirds of the top hundred deals of 2021 involving either the US company or an individual target.
The second reason is that increased regulatory scrutiny is limiting M&A. Antitrust, national security and other issues are increasing the scrutiny of larger deals, and limit consolidation opportunities. The trend is expected to continue through 2024.
Third, the main focus of generative AI (GIA) will drive more M&A to develop capabilities. M&A will be used by companies who do not have the resources or time to develop GIA capabilities internally. The environmental governance, social, and governance (ESG) agenda is continuing to gain traction with CEOs. They are increasingly looking to increase the effectiveness of ESG initiatives by acquiring companies which will assist them in achieving their earnings, growth and valuation goals.
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