Global mergers and purchases are complex, nuanced processes which involve multiple stakeholders. They can be fraught with dangers. They can also transform businesses and help accelerate growth.
The global M&A industry slowed to a 10-year low in 2023 as investors became more concerned about the effects of rising rates, geopolitical tensions, and other factors. (See Chart 1). However, some experts anticipate that activity to increase in 2024 as some of these headwinds diminish.
One reason for this optimism is that there is a backlog of assets will be brought to market in 2024. In recent years, a number of private equity (PE) portfolio companies haven’t sold owing to decreasing valuations. This provides strategic buyers with the opportunity to acquire assets at a lower price.
The ending of the current cycle of interest rate increases and a rebound on the stock market will increase the availability of debt finance to purchase. This will lower the cost of transactions and speed the process of closing deals. M&A can also be utilized by more companies to lessen geopolitical risks and expand into new markets, industries or revenue streams.
In the second half of 2023, a variety of deals that were structured were concluded. These included sales of minority stakes as well as earnouts — structures that make it mandatory for the buyer to pay the full check my source price of the deal when certain operational or financial milestones are met when the transaction is completed. This trend could continue as buyers seek to align incentives in a more difficult environment and close the gap between their valuations.