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M&A market shows surprising strength despite global headwinds


As we stand on the cusp of 2024, Litera, a global leader in legal technology solutions, unveils key findings from its Mergers and Acquisitions (M&A) survey, offering invaluable insights into the state of the M&A market. 

Despite facing economic uncertainties, geopolitical tensions, and various challenges, dealmakers exhibited remarkable resilience in 2023. With close to 35,000 completed transactions totalling nearly $4 trillion, the M&A landscape demonstrated its enduring dynamism amidst adversity. Quarterly deal flows reveal momentum atop what yearly M&A figures already showed, suggesting a trajectory for the future of mergers and acquisitions (M&A). Despite a decline in global M&A activity, there are signs of resilience and adaptation within the market.

The following analysis delves into the intricacies of this evolving landscape. The bulk of M&A declines were concentrated after the first half of 2022, attributed to factors such as interest rate hikes and geopolitical tensions. However, since then, while volume has decreased, the pace of decline has softened. Aggregate deal values have either remained flat or experienced marginal increases. Notably, the average M&A size reached a historic high in 2023, despite a decrease in the median size from its peak in 2021.

Jennifer Tsai, former M&A attorney and Product Marketing Manager at Litera said: “Our latest M&A survey provides a snapshot of global M&A activity and deal trends in different sectors, and the growing importance and role of AI both in B2B transactions as well as within the law firms advising the parties.” 

“2024 is shaping up to be as dynamic and complicated as last, if not more so. Expectations for what’s next in the M&A market remain uncertain due to various global economic factors, from grim economic predictions to outright wars. Despite the array of challenges, dealmakers have continued to evolve and adapt quickly to pressure to remain resilient.” 

“While transactions are taking longer to close — resulting in dealmakers becoming more cautious — there remains optimism about private equity buyouts and add-on deals. Macroeconomic and industry-wide pressures such as digitalisation, reshoring, and exiting markets to concentrate on others, among other things, continue to provide a strong driving force for M&A transactions.”

Transaction multiples reflect the nuanced dynamics at play. As the cost of financing increased, debt loads decreased, leading to lower multiples. However, multiples were supported by increased equity. These figures suggest cautious dealmaking tempered by a willingness to pay up under the right circumstances.

B2B Dominance in IT Sector

In 2023, Business-to-Business (B2B) transactions accounted for nearly 30% of aggregate deal value, marking a record high. This shift towards B2B transactions is aligned with digital transformation initiatives and strategic assessments of technologies such as AI and automation. Companies are leveraging acquisitions to gain technological capabilities and achieve efficiencies of scale, evident in megamergers within the energy sector. Cross-border M&A faced challenges amidst geopolitical tensions, resulting in the fifth-lowest annual aggregate deal value since 2011. Different regulatory frameworks and cultural factors contribute to the complexity of cross-border transactions. Despite the resilience in deal sizes, the EV/EBITDA multiple for cross-border M&A hit its lowest point in over a decade, reflecting the cautious approach of dealmakers.

Adaptive Strategies in a Challenging Landscape

In response to prolonged liquidity pressures, secondary sales and continuation vehicles are gaining popularity among fund managers. Within the private market, take-privates are on the rise as corporations seek to optimize performance. Private equity (PE) buyout funds, armed with substantial dry powder, are poised to capitalize on investment opportunities.

Continuing Role of SPACs

While the SPAC frenzy has subsided, SPACs remain relevant, especially for small to mid-sized companies tapping public markets. Despite regulatory scrutiny, SPACs offer access to liquidity and flexibility, appealing to businesses and investors alike. The M&A landscape continues to evolve amidst economic uncertainties and geopolitical tensions. Despite challenges, dealmakers are displaying resilience and adaptability, leveraging strategic acquisitions to navigate the shifting market dynamics. As the trajectory suggests a potential plateau, the future of M&A remains dynamic, shaped by innovation, regulatory landscapes, and global economic forces.

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