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2024 M&A Outlook: from Stability to Strength

The year 2023 saw a stabilization of global M&A activity after a subdued start due to pressure on financial markets, macroeconomic uncertainty, and rising interest rates. While total M&A dollar volume of $3 trillion was down approximately 20% year-over-year, activity was in line with pre-2018 median levels and average monthly volumes progressively improved throughout the year. Overall signs point to a continued stabilization of the macroeconomic backdrop and reopening of financing markets.

History shows that M&A markets are cyclical, with pullbacks tending to be reasonably short-lived. Even in 2023, volumes normalized and dialogue with corporate clients increased as conditions improved. As the year drew to a close, M&A volumes reflected the strongest level of activity since the beginning of the current rate-hiking cycle. While sponsor-backed activity was notably muted, there is cautious optimism for a rebalancing within this space in 2024.

Looking ahead, several key themes that shaped 2023 will continue to drive activity in 2024:

Normalization of Large-Scale M&A

After a slow start to the year with no deals over $10 billion announced in the first five weeks, large M&A volumes are now on par with longer-term averages. Continued normalization is expected.

Shift to “Older Economy” Sectors

Natural resources led the way in 2023 with 25% of all activity, reflecting a meaningful sector shift toward more established industries like industrials, materials, and power following the post-COVID growth cycle. Momentum in resources, energy transition, and infrastructure is expected to continue.

Shift from Sponsors to Corporates

Significant movement occurred from sponsors to corporate buyers in 2023, though take-private activity proved a notable bright spot. A rebalancing within the sponsor space is anticipated as conditions improve.

Continued Corporate Simplification

The theme of strategic and financial restructuring through corporate separations gained global momentum in 2023 and remains a key driver as companies seek to optimize operations and capital efficiency.

Expansion of Activist Activity

Despite macro challenges, the universe of activists noticeably expanded in 2023. Increased focus on large caps and an evolving arsenal of tools beyond just M&A are expected to sustain elevated levels of shareholder activism.

Rebuilding Cross-Border Pipeline

As global political and economic stability returns, cross-border M&A suppressed during the pandemic is primed to regain strength.

Overall, stabilization is coming into view for 2024 as macro and financing conditions steady. While volatility may persist, CEO confidence is gradually rebuilding – a key prerequisite for the next M&A upcycle. Looking ahead with cautious optimism, 2024 will mark a shift toward renewed strength in the global M&A environment.

Resilience of Natural Resources M&A

The natural resources sector stood out in 2023 with a steady stream of deal announcements across all subsectors and growth themes. Companies entered the year with strong balance sheets and cash flows, well positioned to access open M&A windows while many other sectors struggled. A continued focus on energy transition and technology is expected to fuel further momentum.

Evolution of the Take-Private Model

While sponsor-backed M&A slowed in 2023, take-private activity maintained near-record levels driven by factors like market resets, cost of capital changes, and opportunities from recent IPO/SPAC underperformance. Pressure to deploy dry powder and recognize secondaries opportunities sets the stage for a sponsor rebound in 2024.

Expansion of Activist Tools and Targets

Despite macro headwinds, the universe of activists noticeably expanded in 2023 to include more dedicated funds and institutional investors embracing activist tactics. Increased focus on large caps and evolution beyond just M&A are expected to sustain elevated campaign levels.

In summary, 2024 is poised to mark a shift toward renewed strength in global M&A as macro stability returns and CEO confidence rebuilds. Key drivers will include continued momentum in natural resources, evolution of the take-private model, and expanded shareholder activism. Overall stabilization is enhancing the outlook for dealmaking activity across regions and sectors in the year ahead.