M&A activity expected to pick up in 2024, bankers say

Merger & acquisition activity is expected to increase next year as borrowing is expected to be easier and companies are undeterred by antitrust regulators’ attempts to block deals.

“Clients are more actively calling, and people are picking up pencils on processes that are ready to kick off,” Michele Cousins, head of leveraged capital markets for the Americas at UBS, said at a UBS press briefing earlier this month. “With the recent strength in markets and reduced volatility, people are feeling more comfortable.”

The end of 2023 has seen several large deals, even on Friday with Bristol Myers Squibb’s (NYSE:BMY) planned $14 billion purchase of Karuna Therapeutics (NASDAQ:KRTX). The Karuna acquisition came just weeks after Abbvie (ABBV) agreed to buy Cerevel Therapeutics (CERE) for $8.7 billion and Abbvie (ABBV) agreed to plunk down $10.1 billion for drugmaker ImmunoGen (IMGN). Nippon Steel (OTCPK:NISTF) also agreed to buy US Steel (X) for $14 billion on Monday.

Other notable deals in recent months include some of the biggest of the year, centered in the oil patch, including Exxon Mobil’s (XOM) planned $60 billion acquisition of Pioneer Natural Resources (PXD) and Chevron’s (CVX) purchase of Hess Corp. (HES) for $53 billion.

As of earlier this month, the value of M&A and related transactions was down about a quarter this year to $2.7 trillion, according to data compiled by Bloomberg, which would be the lowest total since 2013, the last time that deal values didn’t exceed $3 trillion in a year.

M&A in the semiconductor space as well as cybersecurity is likely to pick up in 2024, according to Laurence Braham, UBS global co-head of technology investment banking.

Some companies “that have not been too active in M&A likely have resources and the appetite to look at things as we move into 2024 as they get more comfortable with their businesses,” Braham said. “We are seeing thematically that cyber security is a particularly exciting area within the software ecosystem. We expect deal activity to pick up there.”

He explained that while there has been tension on the trade front between China and the U.S., that may be easing as far as potential deals are concerned.

“There is also a recent sense that sentiment is changing on that front as well, as China is looking to attract more foreign investment,” Braham said at the UBS Americas Capital Markets and M&A Media Roundtable earlier this month. “I would expect more activity to happen in the semi-space.”

Private equity firms, flush with $2.6 trillion in “dry powder,” are expected to be more active in M&A in 2024. Buyout firms spent 36% less on acquisitions this year, compared to last year, hampered by issues with getting debt financing and disagreements with sellers over price, according to Bloomberg.

“Given LPs are really craving capital return, given that there are huge amounts of liquidity sloshing around in the PE and sponsor world, I would expect things to pick up in 2024,” UBS’s Braham said. “Expect sponsor activity to pick up fairly materially into 2024.”

Consulting firm PwC agrees that dealmaking may see an increase in 2024.

“Valuation gaps between sellers and buyers also seem to be closing for all but the largest deals, providing another reason for optimism that dealmaking could pick up in 2024,” the consulting firm wrote in its US Deals 2024 outlook.