An overwhelming majority (83%) of corporate and private equity executives responding to a poll by Big Four accounting firm Deloitte said they expect their organization's merger-and-acquisition deal volume to increase in 2024, up 14 percentage points over the past two years, according to results unveiled Tuesday.
The survey found a stronger focus on M&A preparation and strategy by companies amid improving macroeconomic conditions, although the outlook remains uncertain.
“Market conditions can shape that sentiment, but strategy and preparation set the tone," Adam Reilly, national managing partner of mergers, acquisitions and restructuring services at Deloitte, said in a press release.
The findings come on the heels of a recent Deloitte report showing that just over half (51%) of CFOs across North America expect that 1% to 10% of their company’s growth in the next three years will come from M&A. Nineteen percent of finance chiefs said they expect 11% to 50% of their organization’s growth in that period to result from dealmaking.
The total value of M&A deals closed or announced in 2023 reached $3 trillion, down 15.8% from 2022 and 35.5% from an all-time high in 2021, according to a Pitchbook analysis published on Tuesday. “The good news is that the rate of decline seems to be slowing,” Pitchbook analyst Tim Clarke said in the report, citing a spike in aggregate deal value in the most recent quarter.
Both Deloitte and Pitchbook reported signs of a potential M&A rebound this year as a trend of rising inflation and interest rates appears to be easing. However, they also warned that uncertainties still lie ahead.
“Of course, not everything goes as expected and should the global economy land hard and not soft, M&A will likely track lower with the economy, just as it did in 2009 while central banks were cutting rates aggressively,” Clarke wrote.
While inflation has declined from its 2021-2022 peak, and the Federal Reserve has paused — at least for now — its series of inflation-fighting interest rate hikes, those rates are still higher than they’ve been in recent years, which keeps the cost of traditional debt-based deal financing high, the latest Deloitte report said.
Companies also face geopolitical uncertainties such as those stemming from the Russia-Ukraine war, as well as new regulatory risks in a number of global jurisdictions, particularly with respect to antitrust standards and carbon emissions and reporting, the report said.
“This year, the ‘uncertainty’ remains — indeed, it has become more complex and intensified — but M&A leaders are now well aware of the risks,” it said.
Deloitte said its poll shows a new emphasis on deal preparation and strategy among companies. When asked what factors drive the success of M&A deals, respondents ranked “definition of a coherent and well-supported M&A strategy” as the most important. Respondents also reported a strong focus on deal valuation — the second-ranked factor for corporate leaders and the third-highest among private equity firms.
Virtually all respondents (99%) indicated that their organizations have begun incorporating generative AI or advanced data analytics into their dealmaking processes.
“As every part of the M&A lifecycle becomes more complex, leaders are increasingly recognizing the path to success requires the strong foundation of a well-defined strategy as well as the use of advanced analytics and, in some cases, Generative AI to assess past decision-making, and make better, faster decisions about future deals,” Reilly said.
Deloitte polled 1,500 U.S. executives between Sept. 19 and Oct. 10.