Global mergers and acquisitions are a complex, nuanced processes involving many stakeholders, and can be prone to risks. However, they also have the potential to transform businesses and speed up their growth.
The global M&A industry saw its lowest level in 10 years 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 activity to rebound in 2024 as a portion of these headwinds fade.
This optimism is due to the fact that there will be a backlog in assets that are available for sale in 2024. In recent years, a lot of private equity (PE) portfolio companies haven’t sold owing to the declining value of their assets. This will provide buyers with the chance to purchase assets for lower price.
Moreover, the end of the interest rate-hike cycle and a recovery in the stock market will increase the number of loans available for acquisitions. This will allow for a reduction in transaction costs and speed up the process of closing deals. In addition, more companies will seek to leverage M&A as a means of mitigating increased geopolitical risk and expanding into new markets, sectors or revenue streams.
The second quarter of 2023 witnessed many structured transactions, such as sales of earnouts and minority stakes, which are structures which require buyers to pay the entire purchase price only after certain financial or operating milestones are met once the deal is completed. This trend will likely to continue as buyers attempt to align their incentives and bridge the gap in their valuations.