2024 M&A by Industry: Projections & Strategic Insights for Investors

In 2024, the M&A by industry landscape is rapidly evolving, compelling investors to ask one pressing question. Which sectors will lead the M&A charge? From tech to energy, and finance to healthcare, this article pinpoints the current and upcoming M&A trends, delivering essential insights for those ready to capitalize on these market movements.

Key Takeaways

• Despite economic and geopolitical challenges, certain sectors such as technology and energy are projected to see increased M&A activity in 2024, influenced by factors like AI, green technology, and renewable energy investment opportunities.

• Private equity firms are expected to significantly influence M&A activity with a strategy that focuses on speed and bold transactions, though facing challenges like heightened regulatory scrutiny and an environment of elevated financing costs.

• Cross-border M&A is on the rise, driven by factors such as corporate transformations and digitization; however, European and Japanese companies are specifically targeting US acquisitions due to economic underperformance and higher yields, despite the complex and prolonged due diligence processes.

M&A Trends Across Key Industries

As companies navigate through the uncertainties of economic fluctuations and global political challenges, they are poised for a steady increase in merger and acquisition (M&A) activities come 2024. The current M&A sphere reveals activity that is varied across sectors, characterized by:

• Notable recoveries within technology and energy domains

• Significant transactions being drawn towards green technologies

• More sluggish revitalization in fields like banking

In response to these developments, technology firms are employing strategic deals as instruments of transformation to tackle overarching themes such as tech innovation disruption and environmental sustainability.

For effective participation in M&A endeavors, it will be essential to:

• Possess an acute insight into prevailing industry trends

• Remain nimble enough to adjust swiftly within this ever-evolving market setting

• Acquire the capability to exploit prospects while steering through obstacles presented by the dynamic nature of mergers and acquisitions

These elements stand out as critical contributors to triumph amidst this vigorous business climate.

Technology Sector

Artificial intelligence (AI) is the cornerstone of a substantial share of mergers and acquisitions (M&A) within the technology sector. In 2023, global M&A transactions associated with AI saw their combined value surge by 23%, showcasing this area’s rapid expansion. As AI integration quickens its pace, it opens new doors for business opportunities while also refining due diligence operations and stepping up the cadence of deal-making activities.

Turning our gaze to Japan, there’s an evident interest from Japanese firms in diving into the burgeoning AI market—a market anticipated to balloon to $407 billion by 2027—heralding a rise in international M&A endeavors.

In spite of an overall deceleration observed across tech M&A volumes, key subsectors such as artificial intelligence (AI), cloud computing services, data analytics strategies, and cybersecurity infrastructures persistently engage in vigorous deal-making pursuits throughout that same time frame.

Financial Services Industry

Anticipated stabilization of interest rates in 2024 is expected to be conducive for mergers and acquisitions within the financial services industry, which encompasses both capital markets and the broader financial sector. This comes after a challenging year in 2023, where high inflation and rising interest rates posed difficulties. The prevailing conditions are thought likely to create an environment ripe for private equity transactions.

There is cautiousness due to potential regulatory challenges that could affect this positive outlook. Enhanced antitrust enforcement actions by the FTC have been signaled by their lawsuit against Welsh, Carson, Anderson & Stowe—a clear sign of increased oversight in the private equity landscape—and this trend may persist into 2024 affecting M&A dealings within the financial services arena.

Energy Sector

The energy sector, encompassing both the oil and gas industry as well as broader energy companies, is navigating through a complex mix of challenges and opportunities in mergers and acquisitions (M&A). The year 2023 saw renewable energy M&A markets grapple with significant hurdles such as elevated interest rates, inflationary pressures, supply chain disruptions, legislative ambiguities, and concerns over grid reliability. These factors compounded to create an environment where securing advantageous energy deals was notably challenging.

As a result of these obstacles, there was a notable dip in deal volume within the sector when compared to the previous year. Amid these adversities, investor confidence in renewable energies experienced growth bolstered by improvements within supply chains and more definitive spending mandates stemming from legislation like the Inflation Reduction Act.

Looking ahead at what’s on the horizon for mergers and acquisitions within this realm, which includes entities akin to Pioneer Natural Resources, several key influencers are poised to shape outcomes.

• Escalating capital costs.

• A trend toward consolidation whereby formidable players may look to assimilate smaller developers.

• An intensified focus on sustainability that could spark an uptick in substantial transactions related specifically green technologies

• A revitalized wave of M&A undertakings pertaining nuclear power brought forth by progressions tied small modular reactors.

Private Equity’s Influence on M&A

Armed with substantial financial power, private equity entities are set to be influential players in the mergers and acquisitions arena for 2024. These firms approach the market with an invigorated perspective, ready to inject dynamism and heightened deal volume into M&A activities. They adopt approaches that prioritize swift action, securing top-tier talent, and engaging in bold deals designed to forge strategic advantages.

Nevertheless, a number of obstacles loom on the horizon. The relaxation of monetary policies, maturing debt capital frameworks, and pressing imperatives to divest matured assets held by private equity could lead to an uptick in their sales come 2024. In spite of witnessing a downturn from $1.7 trillion worth of deal volume in 2022 down to $1.3 trillion in 2023 — indicative resilience was demonstrated as these firms expanded their focus beyond traditional spheres into alternative asset management realms like private credit.

Deal Volume and Value

Following a peak in 2021, there has been a notable decrease in private equity deal volume and values. The M&A sector did see an uptick in private equity transactions within specific industries.

• Aerospace

• Defense

• Mining

• Metals

• Technology

The value of private equity exits experienced more than a quarter decrease to approximately $574 billion in 2023 from around $783 billion the previous year. Yet during this time frame, consortium deals among different private equity entities stood out, exemplified by ventures like the substantial $13 billion offer for Adevinta backed by eBay.

In spite of these hurdles faced recently by the industry, over the last ten years private equity has managed to maintain an annual growth rate of 11%, amassing significant funds earmarked for future investments.

Challenges for Private Equity Investors

Investors in private equity are facing a challenging landscape marked by several factors, such as:

• Ongoing inflationary pressures

• High-interest rates

• Fluctuating market conditions

• International geopolitical disputes

The strategies employed by firms specializing in private equity are experiencing heightened pressure from rising regulatory oversight. This is especially true with regards to compliance with antitrust laws and environmental, social, and governance (ESG) standards. These issues are compounded by an atmosphere of increased costs associated with financing that adds complexity to transactions within the realm of private equity.

Cross-Border M&A: Opportunities and Risks

Companies are witnessing a revival in cross-border mergers and acquisitions, fueled by efforts to reshape their businesses, environmental, social, and governance (ESG) focused deals, and digital transformation initiatives. In the Asia Pacific area specifically, those enterprises engaging in these international takeovers are outperforming local indexes when it comes to stock prices – a sign that they’re successfully navigating changes in market conditions.

On another note, on another note. There’s been a noticeable reduction in companies outside Europe participating in European cross-border M&A transactions due primarily to regional economic challenges like rising inflation rates within Europe itself. This has also contributed to a deceleration of deal completions – leading them down to levels not seen since 2015. The timeframe required for finalizing such deals is becoming longer. Typically extending beyond 70 days as parties conduct more thorough due diligence processes with particular attention on transactions crossing industry sectors.

European Companies Eyeing US Targets

Companies based in Europe are progressively pursuing the acquisition of American enterprises. This inclination is motivated by the lackluster economic growth in Europe and concerns regarding closeness to areas engaged in conflict.

As European firms face an economy that lags behind that of the United States, they are turning to mergers with US companies as a means of expansion. At the same time, being situated near zones of warfare may be prompting these European businesses to look towards the more stable environment offered by US markets.

Japanese Firms Seeking Higher Yields Abroad

Driven by the desire to enhance returns and deploy capital in international markets, Japanese companies are actively pursuing M&A prospects abroad. This is exemplified by Nippon Steel’s successful acquisition of US Steel, which was sanctioned by the European Commission even amidst political hurdles within the United States.

In 2023’s initial six months, there has been a substantial rise in the value of M&A transactions involving Japanese firms, particularly within the technology and health care industries. This surge reflects a strategic pivot among these enterprises towards more profitable arenas as they adapt to changes in the worldwide economic environment.

The Role of Activist Investors in M&A

Activist investors have risen to prominence in the realm of mergers and acquisitions (M&A). Following M&A announcements, these shareholders employ techniques such as ‘activist arbitrage’, exerting pressure for deal modifications or opposing deals they consider detrimental to value creation.

Such activist investors typically set their sights on M&A transactions they view negatively. This can lead to renegotiation of terms or reduced offers, ultimately benefiting the share prices of companies caught up in the transaction. By disclosing a Schedule 13D with the SEC upon obtaining a substantial shareholding, activists make their objectives known – indicating either plans for corporate change or intentions to sway company leadership.

Adapting to a Changing M&A Landscape