By Merlin Piscitelli, CRO EMEA at Datasite
Following the frenzied highs of 2021, and turbulence of 2022, many dealmakers questioned whether mergers and acquisitions (M&A) would reset to a more sustainable level in 2023. With tighter financing costs, lengthening timelines and ongoing uncertainty, 2023 activity certainly pulled back.
Still, there are now signs of momentum emerging across sectors and regions which point towards an optimistic start to 2024. In fact, deals on Datasite, which facilitates about 14,000 new deals annually, shows new global deals are up 6% year-over-year in the second half of 2023. And because these are deals at their inception rather than announced, it provides a good indication of what’s to come.
To be sure, dealmakers are proceeding with caution. They are being more selective, focusing on quality over quantity. This is apparent from 2023 deal completion rates on Datasite, which have dropped from 49% to 45%, as deals face longer, more thorough, due diligence processes.
Yet for prepared acquirers, there are opportunities and M&A will march on in 2024.
Green Shoots Ahead
There are several positive signs for deal activity picking up again across several sectors in 2024, especially in the first quarter. Following a surge in new industrial deals launched on Datasite in June, there is a strong pipeline for potential deals announcements in the sector this year.
The technology, media and telecom sector also looks particularly active for next year, based on robust activity over the summer. Meanwhile, consumer and healthcare M&A has held its own through a turbulent 2023, with steady activity levels pointing to healthy deal pipelines for next year.
Moreover, deal activity across the energy sector rebounded in 2023, with global sell-side deals up 17% in the second half of 2023, compared to the prior year. Many of these deals are expected to close in the second quarter of 2024, adding to the anticipated flow of announced deals.
Additionally, several private equity (PE) portfolio companies are reaching their hold period in the fund and will need to be sold to return money to their owners. The vast amount of dry powder recently raised by funds will also need to be deployed. This is already showing up on Datasite, where PE buyers were among the most active groups on the platform in the fourth quarter of 2023.
Divergent regional trends
However, regionally, the trends have been more mixed. Deal kickoffs lagged in the Americas despite buoyant buy-side interest. A contributing factor for this is the ongoing obstacles around larger, private equity plays which appear to be more pronounced in the US versus abroad.
On the other hand, new Q3 deals on Datasite ticked up across EMEA and APAC regions, as strategic buyers with strong balance sheets jumped in and corporates aggressively stepping up acquisitions, with cash to deploy for smaller and simpler deals. The EMEA and APAC regions are expected to lead the way for announced deals in early 2024, with increased asset sales in these regions hinting at a busy small and mid-market.
Buyers seizing the moment
There are also opportunities for buyers to take advantage of one-on-one acquisitions. In fact, global buy-side deal kickoffs jumped 37% year-over-year during the second half of 2023, as buyers moved aggressively to capitalise on softening valuations and seller expectations. Additionally, acquirers with deep pockets are ramping up due diligence for one-on-one acquisitions.
Cautious optimism approaching 2024
Looking ahead, there’s growing confidence that the M&A market is positioned for recovery. Buyers have significant dry powder to deploy and are eyeing softened valuations amongst attractive targets. Those who have struggled to acquire in a market rife with private equity competition are now making a comeback. Advisors too are gearing up, increasingly brought on board to provide speed and deal certainty.
Of course, risks remain. Financing conditions may remain tight, slowing some bigger deals.
That’s why deal preparedness and readiness is more important than ever, with stronger preparation time and precise due diligence processes separating successful deals from stalled ones.
Technology as a disruptor for dealmaking in the new year
For busy dealmakers, tools and technologies with the ability to boost workflow efficiencies, reduce administrative tasks and ensure their time is used most effectively, are much sought after. The latest on offer is of course AI, which took centre stage in 2023. And while
applications using AI and machine learning are already helping dealmakers analyse mountains of data to identify better targets faster, most dealmakers see productivity is AI’s biggest benefit, speeding up deals by as much as 50%.
However, most dealmakers want to see better protections around security, privacy and intellectual property (IP) built into these tools before adoption hits an inflection point. As such, expect to see deeper collaboration on guidelines over the next year.
So, while 2023 has been slower for M&A, cautious optimism returns for activity in 2024. Those who are ready for the challenges and prepared to leverage the right tools to get deals over the line will forge ahead.
