M&A participants can anticipate challenges and opportunities in the coming year. Skilled M&A attorneys predict elements that will inform effective M&A transactions and strategies for 2024.

Mergers and acquisitions (M&A) in 2024 presents a landscape fraught with opportunities, challenges, and transformative shifts. This article provides an outlook of the factors and trends that could shape the M&A landscape in 2024 and how Nyemaster's M&A attorneys can assist clients in navigating M&A transactions.

What Positive Forces Will Drive M&A in 2024?

The economic landscape of 2024 is marked by a series of tailwinds. Those tailwinds present unique opportunities for companies engaged in M&A transactions. All of these tailwinds could contribute to a conducive environment for M&A deal-making activities in 2024.

Global Economic Recovery: The global economy is continuing on a path to recovery following the disruptions caused by the COVID-19 pandemic. Reports from leading economic analysts and GDP growth projections indicate a resurgence of economic activity across regions. This economic recovery creates a fertile ground for M&A transactions as companies seek to capitalize opportunities and drive growth through strategic acquisitions.

Projected Lower Interest Rates: Projected lower interest rates in 2024 could provide more favorable financing conditions for M&A transactions than in the previous couple of years. If interest rates move lower, corporate borrowing costs will be reduced. This could incentivize M&A deal-making activities.

Government Initiatives: Government initiatives (both at the federal and state level) aimed at stimulating economic growth and supporting industries may further catalyze M&A activity in 2024. Anticipated infrastructure investments, tax incentives, and regulatory reforms may create opportunities for companies to pursue strategic acquisitions to capitalize on government initiatives and drive growth.

Excess Private Equity Dry Powder and Deal Backlog: Record levels of excess dry powder in the private equity and investment community represents a significant source of capital available for M&A transactions in 2024. This surplus of capital presents opportunities for companies to access funding for acquisitions. This funding fuels deal activity and drives transaction volumes across sectors. Also, the backlog of delayed M&A transactions represents pent-up demand for deal-making activity. Reports from financial institutions and advisory firms suggest that the backlog of postponed transactions due to pandemic-related uncertainties may be resolved in 2024. If so, it will lead to a surge in M&A deals.

What Negative Forces Could Challenge M&A in 2024?

Despite the promise of growth and opportunity, M&A transactions in 2024 face headwinds that pose challenges to M&A deal-making activities.

Inflationary Pressures and Higher Interest Rates: Inflation continues to be a key concern in 2024. The non-transitory nature of inflation has led to heightened uncertainty and volatility in financial markets. It has lifted interest rates in a manner that has greatly slowed the volume of M&A deals. Interest rates continue to be materially higher than during pre-pandemic times. Because interest rates increase the cost of capital, debt financing is more expensive. Higher rates negatively influence deal economics, valuation multiples, and investment decisions.

Geopolitical Tensions: Escalating geopolitical tensions and trade disputes contribute to market volatility. This adds economic uncertainty as businesses navigate regulatory complexities and supply chain risks. As tensions in the Middle East, South China Sea, and Eastern Europe escalate, geopolitical stability, energy security, supply chain resilience, and economic productivity could all become increasingly volatile. Geopolitical risks—such as armed conflicts, terrorist threats, trade disputes, and geopolitical sanctions—all could impact business operations, investment decisions, and market sentiment. That may affect M&A activity.

Increasing Regulatory Pressures: Complexities and uncertainties characterize the regulatory landscape for M&A transactions in 2024. That necessitates meticulous attention to regulatory compliance and risk management. Heightened antitrust scrutiny, data privacy regulations, and trade restrictions all represent significant challenges for businesses engaged in M&A activities. Updated Hart-Scott-Rodino (HSR) guidelines have broadened antitrust scrutiny in M&A transactions. Lowered thresholds now encompass more deals, requiring companies to reassess structures and reporting obligations. Firms must conduct thorough due diligence, analyze competitive implications, and engage proactively with regulators. These changes highlight the need for vigilance and compliance to navigate regulatory challenges effectively and ensure successful outcomes.

Valuation Gaps: Valuation gaps remain a significant impasse between M&A buyers and sellers across industries. The valuation gap seems to have narrowed in 2023 due to the stabilization of interest rates and the consensus that the Federal Reserve will look to cut rather than hike interest rates in 2024. Still, material gaps in value expectations between buyers and sellers continue to be commonplace.

2024 Outlook and Predictions

Despite the potential uncertainty, key themes could emerge to offer insights into the trajectory of M&A activity in 2024.

M&A in the Technology Sector: In 2024, the technology sector remains a hotbed of M&A activity. It's driven by digital transformation, technological innovation, and evolving consumer behaviors.

  • Artificial intelligence (AI), cybersecurity, and cloud computing dominate the M&A landscape. Companies seek to enhance their technological capabilities and gain competitive advantages.
  • Emerging technologies such as quantum computing, blockchain, and augmented reality (AR) present new avenues for strategic acquisitions and partnerships.

As businesses adapt to the digital age and embrace emerging technologies, M&A transactions in the technology sector are expected to proliferate. Those M&A transactions will drive consolidation, innovation, and market disruption.

M&A in the Healthcare Industry: The healthcare industry is set to experience a surge in M&A activity in 2024. Demographic shifts, healthcare reform, and advancements in medical technology fuel healthcare M&A.

  • With an aging population, rising healthcare costs, and increasing focus on preventive care, the healthcare industry presents fertile ground for M&A transactions. The transactions aim to address unmet medical needs and drive long-term value creation.
  • Healthtech and biotech segments attract significant investment. Companies seek to capitalize on the growing demand for innovative healthcare solutions.
  • Telehealth, digital therapeutics, and personalized medicine emerge as key areas of focus, driving strategic acquisitions and collaborations.
  • Healthcare providers, pharmaceutical companies, and medical device manufacturers explore opportunities for vertical integration, diversification, and portfolio expansion.

M&A in the Consumer Goods Sector: In the consumer goods sector, companies are grappling with shifting consumer preferences, e-commerce disruption, and the imperative to enhance brand loyalty and engagement.

  • As consumer expectations evolve, M&A transactions in the consumer goods sector will focus on innovation, differentiation, and brand building. The efforts drive growth and competitiveness in a rapidly changing market landscape.
  • Direct-to-consumer (DTC) models, sustainability initiatives, and digital marketing strategies are gaining prominence as companies adapt to changing market dynamics and consumer behaviors.
  • E-commerce platforms, health and wellness products, and eco-friendly brands are attracting attention from investors and acquirers seeking to capitalize on emerging trends.
  • Strategic acquisitions and partnerships can enable companies to diversify product portfolios, expand market reach, and enhance customer experiences.

M&A in Renewable Energy and Infrastructure: The renewable energy and infrastructure sectors could witness robust M&A activity in 2024. Government initiatives, environmental regulations, and sustainability goals drive interest.

  • With increasing emphasis on decarbonization, renewable energy projects, clean technologies, and infrastructure upgrades could attract significant investment from utilities, energy companies, and infrastructure funds.
  • Solar, wind, and battery storage projects continue to emerge as key areas of focus. Companies seek to capitalize on the transition to renewable energy sources and address climate change concerns.
  • Investments in smart grid technologies, electric vehicle (EV) infrastructure, and sustainable transportation solutions keep gaining momentum, driving innovation and market expansion.

Private Equity M&A Activity: Private equity firms remain active participants in the M&A landscape in 2024. With projected improving financing conditions and record levels of dry powder, private equity firms are set to target investments across multiple sectors and geographies in 2024.

Use of Alternative Financing Mechanisms to Bridge Valuation Gaps: Bridge or seller financing and earn-outs have emerged as mechanisms to bridge valuation gaps. They enable parties to share risks and align incentives. Moreover, creative deal structures, such as contingent consideration and equity rollovers, have offered flexibility and address valuation disparities, facilitating deal completion in a challenging M&A environment in 2023. The use of such mechanisms is expected to continue to rise to bridge valuation gaps in 2024.

Leveraging Legal Expertise to Navigate M&A Transactions in 2024

In the complex and ever-changing landscape of M&A, businesses rely on the expertise and guidance of legal professionals. M&A attorneys navigate regulatory complexities, mitigate risks, and achieve successful outcomes. M&A lawyers play a crucial role in assisting M&A by providing strategic counsel, transactional support, and regulatory insights to navigate challenges and seize opportunities.

Structuring and Negotiation: M&A lawyers assist clients in structuring M&A transactions, negotiating deal terms, and drafting transaction documents to protect their interests and achieve favorable outcomes by advising on M&A deal structures, valuation methodologies, and allocation of risks and liabilities.

Regulatory Compliance and Antitrust Clearance: M&A attorneys navigate regulatory complexities and obtain antitrust clearance for M&A transactions. They help ensure compliance with competition laws and regulatory requirements. M&A attorneys advise clients on antitrust risks, prepare merger filings, and engage with regulatory authorities to secure regulatory approval for transactions, mitigating regulatory risks and facilitating timely deal closure.

Due Diligence and Risk Assessment: M&A lawyers conduct comprehensive due diligence and risk assessments to identify potential legal, regulatory, and compliance risks in M&A transactions. By examining contractual obligations, regulatory compliance, litigation exposure, and intellectual property rights, M&A attorneys help clients assess the legal implications of proposed transactions and develop risk mitigation strategies.

As businesses evaluate the complexities of the 2024 M&A landscape, Nyemaster's M&A attorneys can assist clients in navigate navigating the challenges of the current M&A environment and help businesses capitalize on emerging opportunities, mitigate regulatory risks, and achieve their strategic M&A objectives.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.