Which way for M&A in 2024? 

As the New Year begins in earnest, what will 2024 hold in terms of M&A?

Before we look to the future, let’s briefly revisit 2023. It was a subdued year with the challenges of interest rates, inflation and geopolitical tension causing a significant reduction in deal flow across all sectors. However, November and December provided cause for optimism.  

Not only have a flurry of reasonably sized deals taken place, but we’re seeing other advisors gearing up in preparation, such as the battle between Kirkland & Ellis vs Paul, Weiss, Rifkind, Wharton & Garrison etc. over top private equity lawyers, and M&A preparations have been ongoing despite the lull throughout the year.  

In terms of key drivers of M&A, BlackRock estimates that the private capital industry has $4tn in dry powder which at some point will need to be deployed.

Will 2024 be the year?   

Whilst corporate deals have been few and far between, there were some large transactions last year such as Microsoft’s $69bn acquisition of Activision, and Broadcom’s $69bn acquisition of VMware. The real trend we are seeing is an increase in volumes of private equity-led acquisitions, including KKR’s take private of Smart Metering Systems, Permira’s acquisition of GGW and Apollo’s proposed takeover of Pension Insurance Corporation – with more deals rumoured ahead.  

Despite the lack of consensus on inflation rate changes in 2024, there is a feeling across the market that they will start to flatten out, creating stability for a more active M&A environment. The tough economic backdrop has also meant that companies have had to be proactive in trimming the fat and improving margins, making them more attractive potential targets.  

On the other side of the equation, organic growth has been subdued and companies may need to turn to M&A as a route for driving growth.  

But challenges remain.  

Some of the deals mentioned above have not been plain sailing, as was the case with Microsoft and Activision. The threat of greater scrutiny from a competition perspective has been ramping up and the financial impact of deals from previous years such as ASDA and Morrisons has caused lingering reputational issues for private equity firms.   

Increased scrutiny of deals such as tightened antitrust regulation in the US, and potential new rules for the private equity industry in the UK (mainly around the tax on carried interest), may impact the pace and frequency of deals. The geopolitical outlook remains turbulent and the reputational issues facing private equity firms, and how they approach their role as custodians of brands, remain. These conversations are becoming more prominent in the public domain and will be something that firms need to consider as part of their deal strategy going forward.  

Whilst nothing is certain, we are cautiously optimistic for 2024.  

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