What are M&A sector expectations for 2024?

Forecasts turned brighter in the Citizens 2024 M&A Outlook, but views vary across the nine business sectors surveyed.

Now in its 13th year, the survey engages M&A decision-makers at U.S. middle-market companies (defined as businesses with revenues of $50 million to $1 billion), as well as PE firms who invest in that range. This research was conducted in November - December 2023.

Spotlighted here are some of the data from a sector viewpoint, revealing the full range of outlooks that came through in the 2024 report.

A brighter economy in 2024, particularly for TMT

In Technology, Media & Telecommunications (TMT), 63% of mid-market companies and PE firms expect a strong economy, while in Real Estate, Gaming and Lodging only 32% of respondents.

"Technology businesses are going through an era of rapid innovations. That is prompting investment in digital infrastructure. These dynamics have led to a period of durable growth for tech, which offers value creation to both strategic and PE buyers," says Battle Moore, Citizens JMP Head of Digital Infrastructure & Communications Technology.

Expectations for the 2024 economy correlate strongly with planned M&A activity. Those with higher economic expectations are also more likely to indicate plans to pursue M&A in the year ahead. In a separate question, survey respondents were shown a list of 20 factors that could influence M&A activity, such as stock market performance, interest rate policy, tax policy and more. Companies point to the expected U.S. economic growth rate as the most important factor steering their M&A plans in 2024.

Stable or higher valuations, led by Industrials

The outlook for valuations also improved from the prior year as 38% of mid-market companies say they expect higher valuations in 2024, up from 32%. But a share of decision-makers are less optimistic, with 19% of mid-market companies saying they expect valuations to decline.

Valuation expectations also vary by sector. 54% of executives in the Industrials sector say they expect higher valuations in 2024, while only 26% of executives in Real Estate, Gaming and Lodging companies echo this. “The interest rate environment has really improved the outlook for industrials, given their capital-intensive businesses and typical use of leverage. We see that reflected in valuation expectations,” says Dave Dunstan, Citizens Managing Director and Head of Industrials M&A.

Who has an advantage — buyers or sellers?

M&A Outlook survey data for the last few years has reflected a clear perception of a sellers’ market. But in the 2024 Outlook, the mood shifted towards greater buyer power. This year, 37% of mid-market companies predicted a buyers’ market, up from 33% the year before. Only 31% said it was a sellers’ market, sharply down from 42% the year before.

The mix of responses ranges across sectors. The buyers’ market dynamics came across prominently in Industrials (46%) and Healthcare (42%), followed closely by TMT (39%) and Transportation and Logistics (38%). However, 43% of Business Services respondents indicate that sellers will have the advantage, the largest result of any sector.

“We saw a dramatic uptick in M&A across biotech and pharmaceuticals companies in the last quarter of 2023. That should continue into 2024, as pharma companies look to reload their pipelines at historically attractive valuations,” says David Kellman, Citizens Managing Director and Head of Healthcare Investment Banking.

TMT, Business Services appeal to private equity

In the survey, PE firms were asked which sectors present the most opportunity and their top response was clear: TMT. As technological innovation continues, PE firms continue to gravitate toward tech companies as a top driver of value creation, similar to how technology and growth stocks have led performance in the public markets.

PE firms rank other sectors as having high M&A potential in 2024 as well, with Business Services earning a solid share of votes for the third year in a row. “The service sector has proven to be a continued driver of growth. Business services could be poised for a strong M&A year as the rate environment becomes more supportive,” says Sudip Dhingra, Citizens Head of Business Services Investment Banking.

More buyers and sellers prefer to partner with an advisor

Across sectors, the data shows an increase in companies who would prefer to hire an M&A advisor for advice and guidance on 2024 transactions.

59% of sellers say they would be very likely to engage an M&A advisor, up from 54%. Buyers’ likelihood to engage an advisor also jumped by 10 percentage points to 58%. This preference increases along with company size – the bigger the company, the more inclined buyers and sellers are to engage an M&A advisor in transactions.

Sector-specific experience and guidance are key benefits of working with an advisor, according to Jason Wallace, Head of Citizens M&A Advisory. “Our team absolutely approaches the market with a sector lens,” says Wallace. “The transaction dynamics and norms can differ quite a bit from one sector to the next. The experience of our advisors is exactly what adds value to the M&A process.”