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Last year’s M&A market was just like the 2023 Green Bay Packers.
Indulge us for a moment. Both M&A and the Pack had a shaky start, but ended on a high note.
M&A activity totaled $3.06 trillion in value last year, the lowest in over a decade and a far cry from the $5.86 trillion in value seen in 2021, according to McKinsey research. But, a strong fourth quarter (activity was up 41% from Q3) gave reason for optimism this year, McKinsey experts said.
“We hit a low point, obviously, in 2023,” Jake Henry, senior partner at McKinsey and coleader of the firm’s M&A practice, told CFO Brew. “I wouldn’t expect 2024 to be amongst the most banner years, like 2021 was, but I think you’ll start to see a return towards the mean levels.”
Henry said he bases his prediction for M&A market normalization on stabilizing interest rates and valuations, a cheerier macroeconomic outlook, and a “staggering” amount of dry powder, or private equity capital that’s ready to be deployed. Dry powder reached a record $2.59 trillion in 2023, S&P reported in December.
“Most of the CEOs that I’m talking to right now are considering M&A,” Henry said.
Ready, set, hut. In preparing for a busier season compared to last year’s lull, chief executives are getting their M&A teams game-ready and keeping boards of directors in the loop, Henry noted.
“Although [firms] were maintaining their list of potential targets and staying up on the trends in the market, there wasn’t a lot of activity at that time where that was in front of boards,” he said. “And so, you’ve seen CEOs really rev up their deal teams and ensure that their capabilities haven’t gone fallow in that time—so you see a lot of capability, building training, etc. in the current environment to get them ready. Should the deal markets move rather quickly, they want to be ready.”
Organizations are keeping a close watch over the current geopolitical environment, which could impact M&A opportunities. An escalation in the Russia-Ukraine war and tensions in China, for instance, could impact the broader economy, Henry said.
In the McKinsey M&A report, experts wrote companies could mitigate increased geopolitical risk by selecting regions with better economic outlooks or focusing on vertical integration.
M&A teams are also brushing up on any regulatory changes, Henry said. Regulatory reviews of the largest global deals have lengthened by about 35% over 10 years ending 2022, according to the McKinsey report.
“There have been some updates, of course, to [regulatory processes] in geographies like North America, or in the US specifically, and [companies are] making sure that they understand what to anticipate and [that they’re] ready with the right advisors, lawyers and otherwise, to navigate an in-depth regulatory process,” he said.