Global Mergers and Acquisitions Market Set to End the Year with a “Middling” Overall Deal Value
The global mergers and acquisitions (M&A) market is set to end the year with a “middling” overall deal value of US$3.5 trillion, indicated projections by Bain & Company.
This figure is consistent with levels in the mid-2010s and is 15 per cent higher than last year, the management consultancy firm said in a report released on Thursday (Dec 12). It also expects the global M&A deal volume to climb 7 per cent on the year, reversing a two-year decline.
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Across different deal categories, the narrative varies. Lower rates have revived some interest in private equity and venture capital; private equity’s deal value has increased 29 per cent on the year, and venture capital’s has risen 30 per cent on the year.
The deal value for corporate M&As is on track to end the year 12 per cent higher than 2023, with steady growth across all regions.
Languishing Deals Amid Historically Low Valuations
Bain’s survey of more than 300 M&A executives found that gaps in the valuation expectations between buyers and sellers were a primary drag on M&A activity.
A key contributor was that strategic deal valuations have remained historically low – and well below public market valuations.
“Rather than face substantial markdowns at exit, private equity and venture capital investors dug in with their portfolios. Private and public companies with the option to hold did too,” the management consultancy firm said.
This meant less competition and a lack of urgency, which caused deals to languish.
Navigating the Regulatory Environment
The regulatory environment also affected dealmaking, with nearly half (47 per cent) of dealmakers citing regulatory concerns that affected the types of deals their companies closed in 2024.
Challenges and litigation lengthened deal close timelines and impacted close rates. Some companies spent more time screening and evaluating deals, while others put deals on hold to wait for election outcomes for more clarity on the future regulatory environment.
This created a “barbell effect” where companies favoured either small, under-the-radar deals or large deals with high value creation potential, while giving less priority to mid-sized deals.
Most deal activity came from deals valued under US$1 billion; it accounted for 95 per cent of all activity and grew for the first time in four years. Meanwhile, mega deals valued above US$5 billion supported total deal value.
Adapting to Higher Interest Rates
Persistently high interest rates also made strategic acquirers more selective about their deals, as they pursued deals with more concrete value creation and were less willing to pay for long-term, top-line growth.
“Most dramatically, (strategic acquirers) adjusted to the new M&A value equation by pursuing both revenue and cost synergies in tandem,” Bain said.
Notably, there was a shift towards acquisitions which promised “clear, bankable synergies” within the first year.
This spelled a reversal from the previous trend towards scope M&As, which aimed to accelerate top-line growth by entering or expanding into faster-growing market segments or bringing in new capabilities.
Scale deals, that are intended to strengthen market leadership and lower costs through benefits of scale, accounted for 59 per cent of deal value in 2024 – their highest proportion since 2015.
Increased Reliance on AI
Early adopters who deployed generative AI in dealmaking for sourcing, screening and sharpening overall diligence, said it helped them to cut manual effort, reduce costs, as well as speed up timelines.
Bain found that one in five M&A practitioners used generative AI for their activities in 2024, up from 16 per cent in 2023. Moreover, an additional 16 per cent said they expect to use it in the next 12 months.
Conclusion
Despite the overall deal value being lower than expected, the M&A market has shown resilience in the face of challenging market conditions. The shift towards more selective dealmaking and the increased reliance on AI are trends that are likely to continue in the future.
FAQs
Q: What is the expected overall deal value for the global M&A market in 2024?
A: The expected overall deal value is US$3.5 trillion.
Q: What is the expected growth rate for the global M&A deal volume in 2024?
A: The expected growth rate is 7 per cent.
Q: Which deal categories have seen increased activity in 2024?
A: Private equity and venture capital have seen increased activity in 2024, with deal values increasing 29 per cent and 30 per cent respectively.
Q: What is the expected impact of regulatory concerns on M&A activity in 2024?
A: Regulatory concerns are expected to affect the types of deals companies close in 2024, with nearly half of dealmakers citing regulatory concerns.
Q: How has the M&A market been affected by higher interest rates?
A: Higher interest rates have made strategic acquirers more selective about their deals, with a shift towards pursuing deals with more concrete value creation.
