Global M&A Market Expected to Rebound in 2024 after a Year of Winter, According to Bain & Company

The macro environment in 2023 is sluggish, global M&A transactions are cooling down, and a capital winter is coming.

On January 30th, media reports stated that Bain & Co., the consulting firm, released a new report pointing out that in 2023, global M&A funds hit a new low in the past decade, with the total M&A market value dropping by 15% to $3.2 trillion. The total value of strategic transactions declined by 6%. Among them, the Americas market remained stable, while the European and Asian markets performed poorly. In terms of industries, there was an increase in transactions in the energy and resources industry, while transactions in the technology industry slowed down.

However, the situation may change in 2024. Bain & Co. stated in the report that the global M&A market is expected to rebound in 2024.

Improvement in the global M&A environment

Media reports pointed out that there are many factors that contributed to the decline in global M&A activities in 2023, including the sharp increase in financing costs due to high interest rates, global economic slowdown, stricter regulatory scrutiny, geopolitical risks, etc. Among them, the biggest obstacle is the gap between the buyer's willingness to pay and the seller's asking price.

Looking ahead to 2024, the report predicts that the tradable assets accumulated in 2023 will enter the market, and the number of global M&A transactions will increase in 2024. At the same time, the speed of transactions may also accelerate.

Bain & Co. pointed out:

"During 2023, unfavorable market conditions and factors led to many companies or assets not being traded or sold, resulting in a certain backlog."

Most companies have strong balance sheets and sufficient cash reserves, and "many companies still have enough financial resources to engage in M&A activities."

"The 'probably' end of the interest rate hike cycle in 2024, the downward trend in interest rates, and the reduction in financing costs may stimulate more M&A transactions. The global M&A activities will stabilize and recover in 2024."

The report states that despite the improvement in the market environment, the global M&A market also faces some challenges, such as regulatory approval not being granted; international geopolitical tensions may prevent some cross-border M&A transactions from taking place; in order to optimize operations and improve efficiency, companies may divest or split assets that are not aligned with their core strategies; in order to achieve investment returns, private equity firms may sell portfolio companies that have been held for a long time.

Accelerated M&A in the energy and resources industry

Due to the energy crisis, rising prices, and supply security issues, the global transition to clean energy is accelerating, with more sustainable solar and wind energy gradually replacing traditional fossil fuels.

Liam Connolly, a partner at Bain, pointed out that in the global M&A recovery trend, the energy and resources industry is particularly benefiting because these industries are often capital-intensive and require a large amount of investment:

"The transition to clean energy typically requires a large amount of capital for construction, new energy infrastructure, research and development of new technologies, or the acquisition of existing energy assets. In order to raise these funds, companies may engage in more M&A activities, such as selling non-core assets, merging to enhance market position, or attracting investments. This will increase M&A transactions in 2024." Taking the Australian and New Zealand M&A markets as an example, according to media reports, the total value of M&A transactions in Australia and New Zealand in 2023 was $79 billion, a 13% YoY decline. Among them, the total value of strategic M&A transactions increased by 4% YoY to reach $67 billion, with the energy and resources industry accounting for nearly 50% of the total value of strategic transactions.

Connolly pointed out that in 2023, energy and resources sector transactions worth over AUD 20 billion (approximately $13.22 billion) were unable to proceed. If not for these transactions being put on hold or canceled, the proportion could have been higher.

Furthermore, Connolly stated that the energy and resources industry still faces uncertainties in certain commodities, such as lithium, oil, natural gas, metals, etc. These commodities are not only influenced by interest rates but also subject to price fluctuations due to supply and demand fundamentals. If the prices of these commodities plummet, it will alter companies' investment decisions and impact M&A activities.