M&A volume is on the rise as CEOs go on the hunt for acquisitions

May 31, 2024 – After a year of waiting, 2024 turns out to be a time of action for transactions in the USA. EY’s mid-year forecast just published The EY-Parthenon Deal Barometer projects corporate M&A transaction volume to grow 20 percent year-over-year, almost doubling the original 12 percent predicted in the Barometer’s inaugural publication in January.

Meanwhile, PE deal volume will grow 16 percent year-on-year, compared to 13 percent forecast in January. According to EY, through April 30, deal value was up 69% and deal volume was up 22% for deals over $100 million.

The Deal Barometer uses historical economic and financial indicators to predict future trends in M&A and PE transactions and is a collaboration between EY Chief Economist Gregory Daco and EY Strategy and Transactions leaders – including Mitch Berlin, EY Strategy and Transactions Vice President of Transactions, Americas Chairman, who advises CEOs and boards of directors on strategic transactions.

Deal volume has fluctuated significantly over the past three years, reaching record highs in 2021 and early 2022 before declining sharply beginning in March 2022 as the Fed tightened aggressively to tamp down high inflation.

Future-proofing

EY-Parthenon’s mid-year analysis predicts a significant increase in activity this year, while taking inflation into account. Findings from EY Macroeconomics data show that economic activity in the U.S. remains resilient, and findings from the April EY CEO Outlook survey indicate an increase in the number of CEOs looking to make acquisitions and divestments.

In this report, CEOs and institutional investors revealed a positive M&A outlook for corporate deals and PE activity in 2024. “CEOs view dealmaking as a key lever to achieve their near-term priorities,” he noted, along with the most important deal drivers are technology acquisition, new production capabilities or innovative start-ups.

“CEOs are also looking at their current portfolio of assets and operations and considering what will help them achieve their longer-term ambitions,” the EY CEO Outlook report concludes. The surge in divestment intentions over the next 12 months, which is broad-based across geographies and sectors, “highlights how far CEOs are on the road to future-proofing in a different environment.”

M&A rebound in 2025

“For corporate M&A, the EY tool estimates that corporate M&A transaction volume will grow by a significant double-digit amount this year, after declining 17% in 2023, marking a return to pre-pandemic levels of activity,” said Scott A . Scanlon, founder and CEO of Hunt Scanlon Ventures.

According to EY, the number of deals in 2024 is projected to be only about four percent lower than the average number of deals in 2017-2019. “It’s quite a turnaround,” he said.

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He noted that the optimistic scenario according to EY-Parthenon shows a 31% year-on-year increase in transactions, while the pessimistic scenario assumes a moderate recovery with an increase of 13%.

“For private equity M&A, Deal Barometer expects U.S. PE deal volume to grow 16 percent year-over-year, after declining 15 percent last year,” he noted. While this would still mean transaction volumes fall below their 2021 peak, it would represent a faster growth rate than the average 9% growth rate over 2010-2019.

In the optimistic EY-Parthenon scenario, the volume of PE transactions will grow faster in 2024, by 23%. year to year, while the pessimistic scenario assumes an increase of 8%.

Consolidation and expansion

Despite exceptionally tight monetary policy, the U.S. economy remains resilient and many believe the chances of a recession are currently quite low, Scanlon said. “Companies are using mergers and acquisitions to consolidate and drive expansion,” he said. “According to EY-Parthenon, these are two of the most common factors influencing transactions in April,” he noted.

Through April 30, there were 429 large transactions (over $100 million) in the U.S. totaling $657 billion, representing a 22 percent year-over-year increase in volume (353 transactions) and a 69 percent increase in transaction value ($387 billion). . There were 111 large deals in April – an increase of 46% compared to April 2023 (76 deals) – for a total amount of $131 billion (compared to $101 billion in 2023).

Sectors driving M&A this year through April 30 include technology (113 large deals totaling $154 billion); life sciences (72 large deals with a total value of $96 billion); and energy (64 large transactions with a total value of USD 152 billion).

According to EY, the significant year-on-year increase in the number of larger deals highlights the increase in confidence in the M&A market over the past few months. As the macroeconomic outlook stabilizes, major companies will take strategic corporate actions to improve profitability and boost innovation.

Dealers’ confidence in the market is also growing. This is due to the stabilization of several macroeconomic factors, namely the Fed’s belief that inflation will continue to fall, although it appears to be persistent, and the Fed’s signaling of potential interest rate cuts at the end of the year if unemployment or inflation reach target levels.

Reprinted with permission from ExitUp!

Written by Scott A. Scanlon, co-CEO of Hunt Scanlon Ventures