M&A keeps on trucking

Warren Buffett once remarked that it’s a terrible mistake to bet against America. That much was true last year. Stock markets got off to a flying start in 2023 and after cooling down by mid-year, they surged again to an all-time high by the close of December. The US consumer has defied the doomsayers, shrugging off inflation and spending at will. This has kept the world’s largest economy afloat, to the surprise of many economists.

M&A has been chugging along amid some of the most unfavorable conditions for a long time. Deal financing remains exorbitantly expensive, and this has put private equity at a distinct disadvantage. On the corporate side, the Federal Trade Commission (FTC) and Department of Justice (DoJ) are not making life easy for CEOs with their eyes on transformative, scale acquisitions.

That said, some huge deals are being successfully initiated by strategic players with large cash balances and whose share prices have marched higher, as evidenced by the year’s biggest trades being all-stock transactions.

Volume ebbs lower

The most concerning trend overall is that deal volumes have been ebbing lower and lower. You have to go back to the final three months of 2020 for the next lowest point for M&A numbers. And a catch in the impressive value figures of last year is that a chunk of this came from spin-off activity rather than newly invested mergers or acquisitions.

That does not take away from America’s undeniable influence. With the prospect of interest rates finally slackening later this year and record levels of PE dry powder and cash in corporate coffers, there is every possibility that 2024 will deliver year-on-year gains. It would certainly not be a wise idea to bet against that eventuality.

Published in association with Datasite, Deal Drivers Americas provides an in-depth review of M&A activity in 2023, as well as an outlook for the year ahead.

The report is also available on datasite.com.