:max_bytes(150000):strip_icc()/INV_MA2024_GettyImages-463765397-5e2528d676fd48a98678e184fc61451c.jpg)
Key Takeaways
- After the volume of deal-making fell more than 50% from 2021, analysts and executives believe there will be a jump in mergers & acquisitions (M&A) this year.
- Private equity firms have $1.9 trillion in “dry powder” available for deals, while lower interest rates could also trigger new deals.
- Morgan Stanley sees energy, technology, and health care as the sectors with the most potential M&A activity.
- A Deloitte survey showed that 99% of corporate officials are using artificial intelligence (AI) or advanced analytics to accomplish M&A tasks.
After high interest rates and regulatory scrutiny kept some corporate leaders from making deals in 2023, executives and analysts are expecting a rebound in mergers & acquisition (M&A) activity this year.
A Deloitte survey showed that 83% of corporate and private equity leaders expected an increase in mergers and acquisitions (M&A) this year, with almost as many responding that they expect the volume of their own organizations’ deal-making to grow.
The executive sentiment recorded by Deloitte lines up with a forecast from Morgan Stanley Investment Banking that concluded M&A activity was positioned to increase in 2024 after sinking in 2023 as inflation, high interest rates and increased regulatory scrutiny all contributed to stifle deal-making last year.
Data from FactSet showed M&A activity was down 14.1% in December from the prior month, although spending on deals jumped more than 40% in the month. Only four of 21 tracked sectors had year-over-year M&A growth during the year’s fourth quarter, the report said.
M&A activity can be beneficial for investors by either pressing the share price higher for companies that are acquired, or by quickly adding scale, volume, or market share to corporations that take over smaller companies.
‘Dry Powder,’ Lower Interest Rates Could Spur Deal-making
Deal-making activity has slowed over the past two years, falling to a volume of $2.4 trillion in 2023, down more than 50% from 2021 and lower than the average of $2.9 trillion between 2006 and 2020, Morgan Stanley reported.
But, as the Deloitte survey indicated, the deal-making environment is set to pick up in 2024, with Morgan Stanley referencing $1.9 trillion in private equity “dry powder” that can be deployed toward M&A activity. Additionally, deals will be easier to finance if the Federal Reserve follows through on anticipated interest rate cuts this year.
Sectors In Focus For M&A Activity in 2024
Morgan Stanley pinpointed three sectors where more corporate deals could be coming. Energy was one sector with notable activity in 2023, such as Chevron Corp.’s acquisition of Hess Corp., and companies in this industry seem set for more deal-making this year.
“Energy companies had very strong operating cash flows and balance sheets for a number of years, and they are tactically trying to broaden portfolios incrementally,” John Collins, Morgan Stanley’s head of global M&A, said.
More deals in the technology sector could be spurred when buyers and sellers get closer on valuations, while biotechnology companies looking for research opportunities could drive M&A activity in the health-care sector.
One area on which respondents to the Deloitte survey agreed was the role that advanced analytics and generative artificial intelligence (AI) would play in future deal-making activity, with 99% confirming that their organizations are using the technology for tasks like valuation, integration, and divestitures.