Skip to main content

As we approach 2024, the M&A landscape is set to experience more shifts and trends that will redefine how companies approach these transactions, and CEOs are keeping a keen eye.

In this volatile post-pandemic era characterized by disrupted supply chains, geopolitical conflict, decoupling with China, tight labor markets, stubborn inflation, soaring interest rates, political polarization, and social discord, the role of CEOs in steering their companies toward continued success has never been more challenging. To thrive in this competitive landscape, adopting a bold M&A strategy is becoming even more of a necessity. M&A has the power to transform business models, and this transformation doesn’t always require mega-deals.

Both corporate entities and private equity firms are placing significant emphasis on portfolio reviews as they seek to execute a series of smaller transactions on their path to transformation. These mid-market deals, relatively smaller in scale, offer advantages in the current financial and regulatory environment, making them more achievable. When well-executed, de-risked, and integrated into a meticulously planned acquisition or disposal program, these smaller deals can be just as transformative as their larger counterparts.

In today’s rapidly evolving business world, the role of M&A is a powerful tool for CEOs and business leaders to navigate the tumultuous seas of change, with big and small opportunities waiting to be seized by those who dare to innovate and adapt.

When it comes to the latest M&A trends, business leaders expect to see a resurgence as we move into 2024, according to EY. Based on the latest EY CEO Outlook Pulse survey, 98% of CEOs anticipate actively engaging in strategic transactions within 12 months, representing a notable increase from the 89% reported in January 2023.

From the rise of digital transformation to the ascendance of automation to powering up sustainably, we look at a few M&A trends in 2024.

Emphasis on Deals of a Smaller Scale

The prevailing high-interest-rate environment has sparked a distinct trend in M&A for 2024, and that is a heightened importance on smaller-scale deals. Acquirers are opting for more modest transactions, partly due to the interest rate situation.

These smaller deals present reduced financial risk and are more in line with a cautious approach to risk management.

To address the current interest rate and other macroeconomic factors, some buyers, particularly financial buyers, are developing structural alternatives to upfront cash payments. We increasingly see buyers offering equity consideration (even common stock), deploying earnout structures, and proposing rollover structures. An added benefit of using these structures is that the founders are more aligned with buyers and incentivized to ensure the continuing success of the target after the closing.

Also, acquirers find themselves in the advantageous position of holding substantial “dry powder” or readily available capital that can be suitably and quickly invested. Targeted capital allocation allows for more nimble decision-making and paves the way for strategic acquisitions that align with evolving market conditions, economic uncertainties, and a shifting investment landscape.

The Digital Transformation Revolution

Digital transformation has driven M&A for a decade, and it’s poised to accelerate in 2024. Companies across various sectors are realizing that their survival and competitiveness hinge on their ability to embrace technology. The tech sector is expected to continue its M&A spree, with incumbents and startups making strategic acquisitions to consolidate their positions. Companies should continuously invest in digital transformation to stay competitive. We remain optimistic about the potential for M&A transactions across the technology, energy, healthcare, and life sciences sectors, as well as in smart manufacturing. Whether they are acquiring or being acquired, having robust digital capabilities will be a strategic advantage.

The Resurgence of Cross-Border M&A

In a post-pandemic world, reopening international borders sparks increased cross-border M&A as companies seek growth opportunities and diversification. This trend requires a deep understanding of global regulations and diverse cultures. To navigate uncertainties, collaborate with local partners who share interests, and engage with target company management and local influencers for a harmonious, cooperative approach in dealing with political and regulatory challenges.

ESG Integration Takes Center Stage

Sustainability is no longer a ‘nice to have’ but a ‘must-have’ in M&A. Environmental, social, and governance (ESG) considerations have become a central focus for businesses, investors, and stakeholders. In 2024, ESG integration will be pivotal in M&A transactions. This reflects a growing demand from clients and investors, and companies can expect to be evaluated not only on their financial performance but also on their commitment to sustainability and ethical practices.

Buyers will scrutinize targets’ ESG performance and assess potential risks associated with environmental and social issues. ESG factors will be integrated into due diligence processes, deal structuring, negotiations, and post-merger integrations, making them integral to the success of M&A deals. As long as ESG factors align with economic performance, expect the political backlash to remain just that.

Shifting Investment Focus: Energy Transition

In 2024, we expect a discernible shift in investment focus towards energy transition. While the pace of M&A and capital investment in fintech has decelerated, the emerging trend is the escalating interest in energy transition-related activities. This shift aligns with the global emphasis on clean energy and sustainable practices. In addition, the government has various renewal energy tax credit incentives (e.g., investment tax credit and production tax credit) that may be available to certain clean energy companies, making certain clean energy targets more appealing.

Companies and investors are directing their attention and resources toward businesses and technologies that support the transition to cleaner, more environmentally responsible energy sources. This transformative approach reflects a commitment to addressing climate change and reducing the carbon footprint.

Geopolitical conflict and disrupted supply chains make the transition to renewable and clean energy solutions essential for economic survival.

Private Equity’s Dominance

The ever-expanding role of the private equity asset class has left an indelible mark on the M&A landscape. Private equity firms have emerged as formidable forces in consolidating and growing business, actively propelling a substantial portion of M&A undertakings. This trajectory is anticipated to persist in the foreseeable future.

This year, private equity firms have been a bright spot in the M&A market. Private equity led 57% of public-to-private technology deals in the first half of 2023—almost double their share of public-to-private technology deals in 2020, 2021, and 2022. Morgan Stanley bankers say the rise of private equity in technology dealmaking is just beginning.

The ascent of private equity firms in the M&A landscape has been a consistent and enduring trend. This trend is poised to continue well into 2024. With significant capital resources, private equity investors are expected to be pivotal in steering M&A activities. Their influence and presence in the market are likely to persist, shaping the landscape of mergers and acquisitions in the years to come.

Challenges and Strategies for Navigating the Shifting Landscape

While these trends present exciting opportunities for companies, they also come with challenges. Navigating the shifting M&A landscape in 2024 will require a proactive approach:

Digital Preparedness: Companies should continuously invest in digital transformation to stay competitive. Whether they are acquiring or being acquired, having robust digital capabilities will be a strategic advantage.

Cross-Border Expertise: Companies engaging in cross-border M&A should develop a deep understanding of local regulations, cultural sensitivities, and geopolitical dynamics to ensure the success of their deals.

ESG Integration: Prioritizing access to clean and renewable energy solutions in your supply chain aligns with the growing importance of ESG factors in M&A. Conduct thorough ESG due diligence and incorporate sustainability goals into the post-M&A integration process.

Private Equity Collaboration: Consider partnering with private equity firms to optimize M&A transactions. Their financial and operational expertise can help unlock the full potential of the acquired businesses.

Adaptability: Stay agile and be prepared to pivot your M&A strategy as the landscape evolves. Adapting to changing circumstances will be a valuable asset in 2024.

The M&A themes in 2024 are expected to focus on, among other things, technological innovation and the transition to renewable and clean energy sources. There is a clear and distinct air of optimism for the potential resurgence in M&A activity in 2024. This renewed enthusiasm is underpinned by improving economic conditions and the evolving preferences of investors.

As we navigate through the end of 2023 and look forward to 2024, businesses and investors must maintain a sense of agility and adaptability. These qualities will be key to seizing this dynamic M&A environment’s opportunities. With changing economic dynamics and evolving market conditions, staying agile and receptive to emerging trends will be essential for success in mergers and acquisitions.

Author Louis Lehot

More Insights by Louis Lehot