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Current Landscape of M&A in 2024

As we approach the end of 2024, the global mergers and acquisitions (M&A) landscape is set to reflect considerable growth compared to previous years. Bain & Company's recent report indicates that the total deal value is predicted to reach approximately $3.5 trillion, marking a significant 15% increase from 2023. This resurgence is crucial as it demonstrates a recovery from a two-year downturn in M&A activity.

The recovery narrative varies among different types of dealmakers. A slight easing of interest rates has enabled private equity and venture capital to regain momentum, with reported increases in deal values of 29% and 30% respectively year-over-year. In contrast, corporate M&A, seemingly less reactive to interest rate fluctuations, anticipates a steady 12% growth over the year, showcasing the resilience of some sectors in the face of economic challenges.

The Factors Influencing Growth

Several sectors are experiencing strategic expansions that are contributing to the overall increase in M&A activity. Noteworthy sectors include energy, natural resources, and financial services. Additionally, retail and telecommunications have shown remarkable growth, enhancing their positions in a recovering marketplace. However, despite these positive trends, sectors like technology and healthcare are still lagging behind their historical highs, indicating a complex recovery landscape.

A prominent concern within the industry is the disconnect between buyer and seller valuation expectations. Bain's survey of over 300 M&A executives reveals that this gap continues to be a significant barrier. Currently, strategic M&A valuations hover around 10.4 times EBITDA/EV, in stark contrast to public market valuations, which stand at approximately 16.6 times for the S&P 500. This discrepancy leads investors, particularly in private equity and venture capital, to adopt a cautious approach, often delaying deals until valuations are deemed more favorable.

Navigating Challenges in Deal-making

2024 has also been characterized by prolonged deal closures and increased regulatory scrutiny. Nearly half of the respondents indicated that regulatory concerns have influenced their decision-making process regarding potential acquisitions. This trend has prompted many firms to reassess their deal strategies, with an emphasis on early identification of antitrust issues in potential transactions. A significant number of executives have opted to defer deals until after national elections, anticipating clearer regulations post-election.

Due to these challenges, a bifurcation of deal types is emerging. Companies are increasingly favoring either smaller, tactical acquisitions or significant undertakings with the potential for substantial value generation. Deals under $1 billion accounted for an impressive 95% of total M&A activity this year, marking a shift back to more frequent smaller deals, while mega-deals valued over $5 billion continue to buoy overall transaction values.

Adaptation to New Market Realities

With interest rates remaining persistently high, strategic acquirers have become more discerning in their choice of deals, now looking for immediate and concrete value creation rather than long-term growth promises. Accordingly, 2024 saw a notable shift toward scale acquisitions, which accounted for 59% of all deal value—the most substantial figure since 2015. This indicates a strategic pivot towards mergers that offer clear, quantifiable benefits shortly after their execution.

Generative AI is increasingly becoming a vital tool for M&A practitioners, streamlining processes and improving efficiencies. Reports indicate that 20% of surveyed M&A professionals utilized AI tools this year, a rise from 16% in the previous year. Users appreciated a reduction in manual workloads (79%), boosted timelines (54%), and decreased costs (33%), showcasing a progressive integration of technology into traditional deal-making practices.

Looking Ahead

As M&A activity regains its footing, Bain & Company plans to publish its complete 2025 M&A report in February. This upcoming publication will delve deeper into expected trends, challenges, and opportunities in the M&A landscape, offering insight into the evolving dynamics across various industries and geographical markets.

Bain & Company's insights not only reflect on the current transactions and practitioner sentiments but also mirror the broader economic and policy influences shaping the landscape of global M&A activity, making it a pivotal time for dealmakers in 2024 and beyond.