Mergers and acquisitions dealmakers have had a wild ride. From the pandemic-fueled rout in 2020 to the record recovery of 2021, followed by a sharp decline in 2023, the global M&A market has offered something of a masterclass in volatility.
Strengthened by these fluctuations and successive macroeconomic, geopolitical, and regulatory challenges, many traders approach the year ahead not with apprehension, but with a healthy dose of optimism. Yes, they just went through an extremely difficult year of making deals. And yes, few people remember.
Main trends and prospects for the M&A market in 2024 according to McKinsey
McKinsey predicts that 2024 could usher in a booming new era for M&A, with many dealmakers bracing for a surge in activity. The main trends and perspectives identified are:
A new wave of transactions is expected, with renewed market demands for buyers.
There is widespread optimism among executives despite recent challenges, fueled by the rebound in activity in Q4 2023.
Mergers and acquisitions will remain an essential strategic lever to adapt to major changes (rise of AI, importance of sustainability, new consumer expectations).
Organic growth alone will no longer be enough, with mergers and acquisitions offering more agility to carry out rapid transformations.
Factors supporting the sustainability of the global M&A market despite recent challenges
Despite the slowdown in 2023, several key factors support the sustainability of the global M&A market:
Programmatic small/mid-sized M&A strategy creates superior long-term shareholder value.
Companies have significant undeployed cash reserves, reaching more than $2 trillion at the end of 2023.
A more favorable macroeconomic environment is emerging, with inflation and unemployment under control.
Managers still consider mergers and acquisitions as an essential strategic lever to adapt to changes in their sectors.
M&A Market Performance in 2023 by Region and Sector
The report provides a contrasting assessment of performance by region and sector in 2023:
Regions:
The Americas remained the most active market, with a 7% drop in transaction value.
Europe and the Middle East (EMEA) had a difficult year, with a drop of 30%.
In Asia Pacific (APAC), deal values fell 19% to a 10-year low.
Sectors:
Energy and materials became the most active, accounting for 26% of global transaction value.
Transactions in technology, media, and telecoms have declined after years of dominance.
Corporate transactions have regained the upper hand (82% of value) in the face of a slowdown in private equity investors.
Signs of a recovery in the M&A market at the end of 2023
The report highlights several indicators showing a strong rebound in M&A activity in the 4th quarter of 2023:
The global value of transactions jumped 41% compared to the 3rd quarter, to 1 trillion dollars.
The number of companies changing hands increased by 7%.
The average deal size climbed 32% to $550 million.
This acceleration was observed in all regions, with particularly marked increases in America (+39%) and Europe (+60%).
Steps for companies to take to prepare for a wave of deals in 2024
To prepare for the wave of transactions anticipated in 2024, McKinsey recommends several priority actions for companies:
Reassess strategic M&A themes and update capabilities to evolve portfolios (acquisitions and divestitures).
Change themes to mitigate geopolitical risks (localization, vertical integration, supply chain resilience).
Establish more demanding value-creation criteria to compensate for higher financing costs.
Consider alternative transaction structures (joint ventures, alliances, public buyouts) in the face of reduced debt financing.
Use structures to reduce transactional risks such as milestone payments.
Talent Development and Capabilities to Support M&A Transformations.
While the report does not directly address this question, we can deduce a few key points about the talents and capabilities to be strengthened:
Develop expertise in alternative structures (alliances, joint ventures, public takeovers) which will become more important.
Strengthen skills in geopolitical risk assessment and supply chain resilience management.
Cultivate integration talents to fully capture cost, revenue and transformational synergies.
Increase portfolio management capabilities to carry out acquisitions and disposals in a coordinated manner.
Mergers and Acquisitions Market in Africa - Sectors and Countries.
The mergers and acquisitions market in Africa has experienced strong growth in recent years, with a 300% increase in the number of transactions over the last 10 years. However, Africa still only represents 3% of deals globally.
In 2022, 297 transactions were recorded in sub-Saharan Africa with a combined value of $19.2 billion. This is a drop compared to the record of 2021 ($87.5 billion) but the outlook remains positive for the coming years.
In the first quarter of 2023, mergers and acquisitions fell by 80% in value in sub-Saharan Africa, to $2.9 billion.
The most dynamic sectors are:
Natural resources (mines, energy) which capture the majority of deals. In 2011, more than 50% of operations concerned them.
Mass consumption (telecommunications, distribution, agri-food)
Technology, with a strong acceleration in deals between African startups in 2021-2022
Insurance, with a 41% increase in mergers and acquisitions in the Middle East and Africa in 2022
Geographically, South Africa, Nigeria, and Egypt are the most active countries. But North Africa is gaining momentum. Investors increasingly come from China, India, and the Gulf, in addition to historic European and American players. Private equity funds are also increasingly present.
The main obstacles remain the heterogeneity of African markets, the lack of corporate transparency, and the weakness of regional integration. However, the continent's growth potential is attracting more and more companies wishing to position themselves in this market of the future.
Conclusion on the 2024 outlook and key success factors.
According to McKinsey, in a rapidly changing context, the main success factors for mergers and acquisitions in 2024 will be:
Adopt a programmatic strategy and active portfolio management (acquisitions and disposals).
Have a clear vision of the strategic themes to address and properly target value-creating transactions.
Be willing to consider alternative transaction structures to circumvent constraints.
Build capacity to monitor geopolitical and regulatory developments affecting transactions.
Develop integration skills to materialize all types of synergies.
Maintain rigorous financial discipline in the face of increasing cost of capital.
The Washington Valuation Group Team