M&A in 2024 and Beyond: Cautious Optimism

Characterizing the mergers & acquisitions (M&A) climate over the past several years as “mercurial” is indeed an understatement.

While our company’s purpose is to provide strategic M&A guidance and counsel to companies in the industrial manufacturing (IM) sector, for any executive – no matter what business she or he is involved – it is important that we keep our collective eyes on the entire M&A landscape, as all our industries are inextricably intertwined.

So, before we can look forward, we need to step back and revisit recent M&A history. Two thousand and nineteen was a solid year, which was then followed up a significant drop-off in 2020 – driven by the pandemic. M&A activity increased to record numbers the following year, but such factors as an everchanging regulatory environment in many sectors, a turbulent geopolitical state of affairs and tenuous global economic conditions – including rising interest rates – saw M&A activity decline in both 2022 and 2023.?

In fact, 2023 global M&A activity dropped 16 percent from a year earlier, to $3.1 trillion, while in the U.S., from an S&P 500 market value perspective, transaction activity plummeted to its lowest levels in two decades1.

Further, in the auto manufacturing sector – an industry in which our firm is entrenched – deal volume in 2023 was down about 30%, while deal value dropped sharply – about 22% compared to 2022.2

One would think that based on these numbers if there is a light at the end of the tunnel – it is that of an oncoming train.

But we do not think that is the case.

While 2023 was a down year in total, momentum did pick up through the second half of the year, with the final three months the most active. Further, the first five months of 2024 have been strong ones for M&A activity. Through May 31, the overall deal value totaled $535 billion, up nearly 30% from the $412 billion in the same period a year ago.3 And while there will always be potential roadblocks, the mood in the M&A market is one of at least cautious optimism.

M&A 2024 and Beyond: Activity Drivers

Profitability continues to be – and will always be – top-of-mind for executives. As their companies continue to navigate the headwinds of high inflation and interest rates, along with structurally high input costs, including, but not limited to, labor costs, they are challenged with seeking fiscally appropriate opportunities.

However, with the understanding of potential rate cuts and future policy changes, these challenges will turn into opportunities. As companies continue to pursue both transformative and strategic ambitions, we should see an overall rise in M&A activity.

Among other signs of increased M&A through the balance of 2024 and beyond:

• Whether as buyers or sellers, financial sponsor activity could accelerate in 2024. With pressure to return Distribution to Paid-in-Capital, we are looking at sponsors in all sectors and disciplines to monetize
• Due in large part to inflation and interest rates, valuations have begun to return from their high levels
• Companies will continue to focus on their core businesses and more secure supply chains
• The tremendous increase of artificial intelligence (AI)-driven M&A through all sectors and disciplines

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Turning to Industrial Manufacturing

As with many other industries, the first 120 days of this year saw an uptick in IM M&A value over the same period in 2023. From my perspective, we can attribute these to several factors, most notably improved executive confidence and profitability growth. These two factors, among others, helped propel the increase in larger deals and activity.

?Here are some other factors we think will shape IM M&A activity:

• The pandemic-driven supply chain issues that severely hampered all industries – primarily manufacturing – are dwindling. Competitively priced raw materials are now more readily available, thus helping to stabilize or even reverse – declining margins.
• AI, arguably one of the most significant technological advances since Henry Ford created the assembly line, will not only help manufacturers become more competitive, but also more appealing to potential buyers
• There remain significant amounts of capital among private equity (PE) groups to deploy across the IM landscape
• Ongoing geopolitical instability continues to have manufacturers look closely nearshoring, reshoring or onshoring operations, which, in turn, will increase valuations and offset price- and cost-driven outsourcing.
• Thanks to legislative efforts such as the Inflation Reduction Act, as well as millions in leftover loan proceeds from the Paycheck Protection Program (PPP), a substantial number of strategic acquirers have the cash to fund a suitable deal

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Additionally, we expect easing monetary policies and a clearer picture of policy direction after the November elections should foster an increase in transaction activity at least in into 2025, in what is shaping to be a dynamic M&A playing field.

About the Author

Randy Rua Rua is president of NuVescor Group , a leading provider of mergers and acquisitions services for manufacturers in Michigan and beyond. He can be reached at [email protected].

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1 McKinsey: Top M&A trends in 2024: Blueprint for success in the next wave of deals, February 2024

2 PwC: Automotive: US Deals 2024 midyear outlook, June 2024

3 PwC: US Deals 2024 midyear outlook, June 2024