Global mergers and acquisitions are intricate, complicated processes that involve a variety of stakeholders. They are often fraught with pitfalls. However they also have the power to transform businesses and speed up their growth.
The global M&A industry saw its lowest level in 10 years in 2023, as investors were more concerned about the effects of rising rates, geopolitical tensions, and other factors. (See Chart 1). Some experts believe that activity will increase in 2024, once some of the headwinds receding.
One reason for this optimism is the fact that a backlog of assets is expected to come to market in 2024. Many private equity (PE) portfolio companies have not sold in recent years due to the fact that valuations have dipped. This provides buyers with a chance to acquire assets at lower price.
The closing of the cycle of interest rate increases and a rebound on the stock market will also increase the amount of debt financing available for acquisitions. This will reduce the costs of transactions and accelerate deal finalization. Additionally companies will be more likely to make use of M&A as a way of lessening the risk of geopolitical instability as well as expanding into new markets, sectors or revenue streams.
In the second half of 2023, numerous structured transactions were concluded. These included sales of minority stakes as well earnouts – structures that require the buyer only to pay the full amount of the deal when certain operational or financial milestones are met after the transaction closes. This trend may continue, as buyers attempt to align their incentives in a tougher context and close the gap between their valuations.
