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.
The 13th annual survey reveals an optimistic outlook for mergers and acquisitions (M&A) in 2024, based on the views of 400 U.S. middle-market company CEOs, CFOs and private equity (PE) principals. Solid expectations for the U.S. economy and an easing of market headwinds underpin positive sentiment on the 2024 M&A environment, especially among potential buyers.
Key themes
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“A sense of normalcy is returning to the M&A environment. While there is still caution, companies across sectors are looking at their economic prospects and seeing opportunities.”
Jason Wallace
Head of M&A Advisory
While the pool of sellers remained fairly typical for 2024, the pool of buyers continues to expand from 2022 lows. Among buyers, 44% say that financing and capital markets will aid their acquisition strategy in 2024, indicating confidence in the interest rate environment.
Beyond the influx of buyers, there is a perceptible mood shift in the M&A market. After a perceived sellers’ market in recent years, views moved toward center, even skewing toward a buyers’ market in 2024. 36% of all respondents say it’s a buyers’ market in 2024, though mid-market companies are slightly more likely to see a buyers’ market (37%) compared to PE firms (33%).
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“Borrowers are becoming more comfortable with the forward-rate environment. It has become apparent we are nearing or at the end of the Fed's rate-hiking cycle, which should benefit valuations.”
Michele Goodenough
Managing Director, Fixed Income Capital Markets
The sponsor community also see a solid pace of deals ahead. The most commonly cited reason for expected deal flow is “PE assets coming to market,” indicating a potential surge in sponsor portfolio holdings for sale. However, PE firms also see themselves more as buyers in 2024. Of PE firms who see higher deal flow in 2024, eight in 10 say they expect to buy more than in 2023, while only two in 10 say they’ll sell more.
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“While disruptions to M&A in ’22 and ’23 have led to some imbalances — for instance the sheer amount of PE capital on the sidelines — we are seeing renewed excitement from buyers and a rebalancing market.”
Gavin Slader
Head of M&A, JMP, a Citizens company
AI is on sponsors' wish list
Artificial intelligence (AI) was a well-covered topic in 2023 and it’s poised to influence M&A in 2024. A quarter of PE firms who expect higher deal flow say AI assets are on their wish list.
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“After the extremes of the last few years, the move toward healthier M&A sentiment helps foster market confidence, which benefits both buyers and sellers.”
Steve Dyott
Managing Director, Citizens M&A Advisory
Another trend that arose in the 2024 data is interest in buying and selling opportunities beyond U.S. borders. After four years of declining expectations, interest in foreign deal partners rebounded in 2024.
Uncertainties regarding the outcome of the 2024 U.S. election could be another factor driving companies to consider M&A, especially in the first half of the year. 41% of mid-market companies said the pending elections make them more likely to pursue M&A in 2024.
Market sentiment has been boosted by a late-year shift in the interest rate environment. But broader improvements across the economic landscape are also a critical factor in M&A.
The data on the economy is positive, as 2024 expectations indicate a healthy uptick in those expecting the backdrop to improve. The outlook is not perfectly uniform; more than a fifth of respondents say they expect the economy to worsen. Still, the average forecast is brighter than in 2023. In another survey question, fewer mid-market companies cite operating factors — commodity prices, interest rates and labor markets — as headwinds for 2024 than did so the year before.
The positive economic predictions serve as a clear driver of M&A intentions in the year ahead. 47 % of mid-market companies say that expected U.S. economic growth rate makes them significantly more likely to pursue M&A, as a buyer or seller in 2024.
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“Few people thought we would get through a rate-hike campaign without an interruption to growth. Some of that uncertainty remains, but the bigger picture shows that most companies are optimistic.”
Dave Dunstan
Managing Director, Citizens
Key takeaways
Both middle-market companies and private equity firms have more upbeat expectations for M&A in 2024, though some caution remains after the volatility of the last few years. Still, there are signs of enthusiasm, especially among buyers, with notable trends towards potential international deal partners, interest in AI assets among sponsors, and the upcoming election as a catalyst. Most importantly, expectations for a solid economic backdrop are the core driver behind more optimistic M&A plans.
Actions to consider in 2024
- Keep timing top-of-mind in deal deliberations. A buyer-favored environment can drive longer deal timelines than a seller-driven one.
- Be mindful of the impact of the U.S. elections. The election could influence deal activity early in the year if anxiety grows among companies or sponsors regarding changes in tax or regulatory policy.
- Prepare for a more competitive deal environment. Interest rate cuts, if enacted, and higher confidence could bring more buyers into the market.
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