US M&A: Headwinds easing

The US M&A markets were challenging for much of 2023.  Acquirors faced uncertainty at every turn as the Fed steered policy in hopes of achieving a soft landing for the economy.  Inflation burdened the cost of financing and the Administration’s increasingly tough stance on antitrust kept potential merger partners on edge.  Furthermore, wide bid-ask price gaps also kept many buyers and sellers sidelined, particularly Private Equity, who often adopted a “wait-and-see” approach to M&A.

As we enter 2024, there are signs that some of these headwinds are easing.  US equity markets started the year off near all-time highs.  The Fed announced it was holding rates steady and signaled the potential for rate cuts in 2024.  CEO confidence is edging up and many Boards are eager to greenlight M&A as a complement to slowing organic top line growth.  Likewise, financial sponsors are holding an estimated $2.8tn of unrealized investments. The private equity machines have no choice but to kick back into gear to start monetizing assets and returning capital to LPs. 

Overall, deal backlogs are up meaningfully and, barring any exogenous events in Q1, many expect M&A to pick up in the new year.  Areas ripe for activity include Technology (particularly anything involving AI), Healthcare and Infrastructure.  The unknown for the US in 2024 is, of course, the election - an event that sometimes causes a pause in activity, particularly if the outcome is uncertain or potentially polarizing.