Global Acquirer Trends: Reflections on 2023, expectations for 2024
In the face of economic and geopolitical pressures, our Global Acquirer Trends data shows that M&A numbers held up well last year, albeit with a slowdown in Asia-Pacific as concerns about China’s recovery and strained relations with the US weighed on acquisitions. Activity was skewed to the second half, with slowing inflation fuelling hopes of interest rate cuts helping to unlock financing for acquirers and improving visibility over target company performances.
Looking into 2024, trends point to an ongoing improvement in M&A as corporates and private equity deploy more capital. However, domestic and international political considerations are unlikely to ease, particularly in a year of significant elections.
- Improved financing conditions
The downward path for inflation in the second half of last year fed hopes of a series of interest rate cuts in 2024, which in turn pushed down treasury yields and credit market spreads. Returning confidence has fed an increase in leveraged loan issuance in the US[1], and to a lesser extent in Europe, while corporates have also sought to refinance and replenish their coffers at more attractive rates[2].
The mood softened somewhat in January amid renewed concerns about inflation, and more hawkish commentary about interest rates remaining higher for longer. However, there are clear signs that vendors are ready to bring a sizeable wave of assets to market, which could spur a rapid uptick in M&A activity, at least in the first half of the year.
- Domestic and geopolitical agendas
The geopolitical backdrop has become more fragile in recent years and shows few indications of stabilising in 2024. Freight rates spiked sharply in January after conflict in the Middle East spread and Red Sea shipping came under attack from Houthi rebels in Yemen. The impact will filter through markets, creating renewed pressure on supply chains and inflation, increasing costs, and adding uncertainty to trading outlooks.
Domestic politics are another source of potential volatility. US elections have historically coincided with a slowdown in M&A activity, and this year’s expected contest between two candidates with polarised positions is unlikely to be any different. Should Donald Trump be returned to office, he has pledged to reverse elements of the Biden administration’s flagship Inflation Reduction Act – even if much of the programme appears to be already invested. His election may also impact funding for Ukraine in its conflict with Russia, shifting the US back to a more America-first approach to policy.
Other sources of international tension may moderate, however. Pro-independence candidate Lai Ching-te was voted in as Taiwanese President in January, albeit without the majority his predecessor enjoyed. It remains to be seen whether this result will settle relations with China, which could help to prevent any further deterioration of China’s links with the West that might adversely impact cross-border capital flows.
- UK & Ireland value
A UK general election is also likely in the second half of 2024, with current odds pointing to a heavy defeat for the incumbent Conservative Party. While the left-of-centre Labour Party has made efforts to win over businesses and the finance community, a change in government may well lead to changes in the current tax regime in the UK, which could impact companies, investors and investment.
The resolution of differences between political parties in Northern Ireland over the post-Brexit trade arrangements between the nation, the rest of the UK and the EU will restore the devolved government in Northern Ireland after a 23-month pause and potentially contribute to a thawing of UK-EU trade relations, and possibly also between the UK and USA.
Other challenges to inbound investment will remain. The UK’s National Security Investment Act, introduced in 2022, does not halt inbound M&A but is broad and requires qualifying transactions to be notified by acquirers in advance. The result has been a slowdown in inbound processes and extended timetables.
Despite the hurdle, the UK & Ireland region has been a very attractive geography for M&A, particularly for US acquirers that accounted for some 44% of inbound investments in 2023. UK public company valuations lagged the US recovery last year, marking out British companies as undervalued. Even after Brexit, the UK remains a bridge into Europe for many US acquirers and benefits from similar business-friendly policies, particularly when compared to more labour-focused regulation in the likes of Germany and France.
- Sectoral tailwinds
Acquirer activity is – and will remain – robust in sectors that benefit from secular trends. Increasing global demand for healthcare underpins activity in medical markets – including pharma and biotech – both in mature markets like the UK and US, as well as emerging markets. Similarly, rising food demand is driving solutions that can boost productivity, while investment by acquirers in cyclical sectors, such as industrials and energy, is turning to technology or services with a sustainability focus. In short, acquisition targets with an environmental angle will be in demand.
Any anticipated increase in activity, particularly in the first half of 2024, must be measured against acquirers’ higher quality threshold. Corporate buyers are seeking deals that are material and additive, bringing scale and distribution nationally and internationally. However, in more uncertain and volatile markets, many are less motivated to pursue large transactions and risks. As a result, we expect a continued focus on mid-sized transactions globally, with the potential for some larger strategic acquisitions and private equity takeovers for compelling opportunities.
[1] https://www.weil.com/-/media/mailings/2023/q3/leveraged-finance-market-update-october-2023.pdf
[2] https://www.ft.com/content/20041cec-a83f-4f41-8cf3-b40d3464c922
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