Trends in Mergers and Acquisitions in 2024

Background to Mergers and Acquisitions in 2023

In 2023, the value of global M&A transactions fell 16 percent to $3.1 trillion, even weaker than the 2020 pandemic year. The average deal size increased by 14 percent thanks to a series of large transactions. 

The reasons for the decline in M&A transactions may be listed as (i) high interest rates, (ii) economic turmoil and (iii) geopolitical risks.

Sellers were not willing to sell as company valuations were lower than their expectations. There were huge gaps between the price expectations of buyers and the prices demanded by sellers. This was observed as the most important reason for the decline in M&A transactions.

On a sectoral basis, transactions in the pharmaceuticals, healthcare and energy sectors were on the rise again in 2023. Although there was a decrease in M&A transactions in the technology sector in 2023 compared to previous years, transactions in technology companies continued to be in demand due to companies producing artificial intelligence-based solutions. The most prominent examples of artificial intelligence increasing the demand for technology sectors are Microsoft’s $13 billion investment in OpenAI and Google and Amazon’s $2 billion and $4 billion investments in Anthropic. 

Companies have turned to vertical transactions to boost current profits and transform future operations. For example, automotive companies, Stellantis’ investment in Lyten and Ford’s acquisition of Auto Motive Power aimed to future-proof their access to charging technology. 

Private equity deals were particularly affected by the rise in interest rates. Private equity transactions accounted for only 18% of M&A transactions in 2023 ; total value fell 37%. Private equity’s uninvested capital reached a record high of $2.59 trillion as of 15 December 2023.  

Expectations for 2024

M&A transactions in 2024 are expected to increase. The increase in transactions towards the end of 2023 is actually a harbinger of this. 

With rising interest rates becoming more stable - or even declining in many countries globally - companies that have been hesitant about M&A transactions are expected to re-enter the market. In particular, banking, energy, healthcare, technology and real estate investments are expected to increase. So far the lead sectors by value and volume in Q1 of 2024 in Turkey, Middle East and Africa are telecoms, media and technology and energy, mining and utilities.  

The rise of scale deals, which can be defined as M&A transactions in which companies aim to increase their market share in the sectors in which they operate, is expected to continue in 2024, while the number of scope deals, which can be defined as transactions aiming new competencies and access to new markets, is expected to be relatively limited.

Companies are expected to divest assets that do not fit their strategies.

Private equities are expected to be more involved in M&A transactions in the coming period due to factors such as the size of the reserves that private equities have not yet converted into investments and the relatively lower interest rates on a global scale compared to last year, and to direct their exit strategies and new investments.

With representation and warranty insurance becoming cheaper compared to previous years, it is estimated that the demand for representation and warranty insurance will increase in M&A transactions that will take place in 2024. 

Despite a projected rise in M&A transactions in 2024, it is important to consider some key factors that could impact deal flow. Difficulties in access to financing are likely to continue to have an impact on M&A transactions. In addition to difficulties in accessing financing, legal regulations also continue to have consequences for M&A transactions. In particular, it is noted that ESG-related regulations will increase in importance in M&A transactions while tightening regulations on environmental issues may create difficulties in transactions. Competition law, data protection legislation, sanctions regimes, regulations on foreign investments and foreign subsidies will also be decisive for transactions. 

Valuation differences between sellers and buyers are expected to continue in 2024. Deferred payment in the form of seller notes and earn-out mechanisms are expected to be more widely used to resolve these issues. 

Conclusion

In conclusion, 2024 has the potential to be a promising year for M&A transactions. The stabilization of rising interest rates and their decline in some countries will create an opportunity for companies to re-enter the market. Increased investments in sectors such as banking, energy, healthcare, technology, and real estate are expected to stimulate M&A transactions. In addition, high reserves of private equity funds and easing difficulties in accessing financing will contribute positively to the M&A market. However, factors such as legal regulations, ESG-related rules and competition law will continue to be determinants of M&A transactions. The wider use of deferred payment methods and earn-out mechanisms to overcome valuation differences between sellers and buyers may change the dynamics in the M&A market. Considering all these factors, 2024 may be a more active year for M&A transactions and full of opportunities.