Industry Trends
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We have reached the halfway mark of 2024, which yields an opportunity to take stock of the economic landscape and the mergers and acquisitions (M&A) activity that has shaped the first half of the year. This midyear review highlights the positive momentum in the global economy, the resurgence of M&A deals, and the key trends driving these changes, with a particular focus on the thriving technology sector in the United States.
Macroeconomic Picture Continues to Brighten
The US economy is coasting on positive momentum, enjoying the ongoing boost from a strong labor market and improved productivity growth. The first half of 2024 delivered the global economic recovery forecasted by economists, energizing one-quarter of the world’s 45 largest economies that slid into recession in 2023 and elevating the world stock market (measured by the MSCI World Index) by nearly 10%. Global disinflation has made significant headway, and generally without job losses.
US labor data is unambiguously positive. For the first time since the late 1960s, the unemployment rate has been below 4% for over two years. Initial jobless claims hover just above 200,000, a historically low level. Hiring continues to be broad-based with robust job creation, adding 829,000 jobs in Q1 2024.
Mergers and Acquisitions Trends at a Glance
The M&A space has seen its fair share of ups and downs over the past couple of years, with challenging macroeconomic factors—from post-pandemic conditions to burgeoning interest rates and fluctuating inflation—forcing deal activity to record lows. As the world steadily resumed normal activities post-pandemic in 2021, M&A transactions boomed and investor confidence rose. This moment of M&A prosperity was short-lived, however, ushering in another steep drop-off in mid-2022. As high inflation, rising interest rates, and geopolitical uncertainty hindered dealmaking, lower share prices left investors struggling to secure deals.
After a record-low year for dealmaking in 2023, down 32% from the previous year, 2024 has presented fresh challenges and exciting opportunities in the M&A landscape for both buyers and sellers. With the US economy increasingly likely to achieve a soft landing—thanks to cooling inflation and anticipated interest rate cuts later this year—company boards and management are more confident about pursuing strategic transactions, and investors see a way to secure financing on acceptable terms and get deals over the finish line. Coming off the 2023 downturn, dealmaking defied expectations with a strong Q1 2024 despite ongoing economic anxiety and global tensions. This surge in M&A activity across sectors, with deal value reaching $798B compared with $580B in Q1 2023, is fueled by emerging trends that signal a significant rebound:
- Stabilizing deal activity. After a slow 2023, deal activity and flow appear to be stabilizing and are likely to grow at a steady pace in 2024.
- Rise of generative AI. Seeking to make the most of generative AI, more and more companies are prioritizing deals that enhance their tech stack and put them at the forefront of the AI revolution.
- Increased regulatory scrutiny. An intensifying regulatory landscape in the US factors into how companies enter deals.
- Growth in small-to-midsize M&A deals. As valuations reset, M&A transactions at the smaller end of the spectrum are on the rise.
- Private equity (PE) dry powder. PE firms are sitting on a record unspent cash reserve, which will likely spur M&A activity in the near future.
- Sector focus. Technology, healthcare, and renewable energy are attracting the most attention from dealmakers around the world.
Technology Leads the Way in M&A Activity
Globally, the technology sector has emerged as a frontrunner in the resurgence of M&A activity, with the largest share of deals (19%) in the first three months of this year. Tech witnessed a significant burst in deal value to $125B in Q1 2024, up from $92B in Q1 2023. The positive sentiment surrounding tech deals suggests a bright outlook for the rest of 2024, powered by several key factors that have collectively fostered a wave of cautious optimism in the broader M&A environment.
The stabilization of inflation and interest rates, coupled with the availability of ample capital awaiting deployment, has reignited confidence among dealmakers. Moreover, technology companies are recognizing the operational imperatives of portfolio restructuring to achieve digital agility and resilience, further fueling M&A activity. Tech companies are actively seeking to enhance operational efficiencies, expand market share, and acquire AI and machine learning expertise while broadening their digital transformation efforts. To achieve these goals, they are pursuing promising private companies and PE portfolio assets that can fuel their inorganic growth journey.
Other Key Sectors Driving M&A Activity
Beyond technology as a crucial driver of M&A activity, several other sectors are also experiencing significant momentum. Here’s a closer look at some vital industries contributing to the bustling M&A conditions.
Energy and utilities (15% share)
The energy and utilities sector is experiencing significant growth due to the global push for sustainability and decarbonization. Investments are mounting in renewable energy sources like solar and wind, with companies acquiring technologies and firms to enhance their green portfolio. Notable deals include acquisitions of clean energy startups and mergers between large energy companies that focus on renewables.
Banks (13% share)
The financial services sector is evolving alongside the upswing in financial technology and digital banking solutions. Fintech innovation, regulatory changes, and digital transformation are key drivers of M&A. Major deals include acquisitions of fintech startups by traditional banks and investments in digital payment solutions.
Telecoms, media, and business services (TM&BS) (12% share)
The TM&BS sector is undergoing transformation due to technological advancements and the increasing demand for digital services. M&A activity is propelled by the need for consolidation and the expansion of digital capabilities. Essential deals include telecom company mergers, media firm acquisitions, and investments in business services that enhance digital offerings.
Healthcare (11% share)
The healthcare sector continues to see robust M&A activity driven by consolidation, technological advancements, and personalized medicine. Digital health and telemedicine are particularly hot areas as healthcare companies acquire specialized firms to enhance their capabilities. Significant deals include major mergers of healthcare providers and acquisitions of biotech startups.
Outlook
Moving into the second half of 2024, we remain cautiously optimistic about the global economic outlook and M&A activity across multiple sectors. Of course, continued vigilance in monitoring economic indicators and adapting to emerging trends will be crucial for stakeholders. By executing strategic planning and enacting proactive measures, companies can navigate the complexities of the current environment and capitalize on the opportunities ahead.
Let our team of experienced professionals guide you through every step of the M&A process. With our deep industry knowledge and proven track record, we can help you achieve a successful outcome. Contact us today for a consultation to discuss your M&A needs.
