Navigating the M&A Waters: A Resilient Outlook for 2024

Amidst the ebb and flow of economic tides, investment bankers are setting their sights on a promising year ahead for mergers and acquisitions (M&A) in 2024, buoyed by a late surge in announced deals late last year. The optimism follows a challenging 2023, marked by a 20% dip in announced M&A to $US104 billion, attributed to macroeconomic volatility and collapsed takeovers.

Macroeconomic Stability and Pricing

?The optimism for 2024 is driven by improved macroeconomic stability, enabling more accurate valuation of companies. Clarity on interest rates for the year enhances confidence in valuing assets and pricing in the cost of capital for acquisitions. We note that the macro stability is unlocking pent-up demand for M&A following a structural low in 2023.

Bid-Ask Spread and Market Dynamics

Stabilisation in the market is expected to narrow the bid-ask spread between buyers and sellers, crucial for driving interest from potential buyers. Unlike the bidding wars seen in bull markets like 2021, investors have become more selective, leading to a higher dropout rate in auctions due to disagreements on valuation. As the market recovers, open auction processes are anticipated to attract more participants.

Financing Markets and Access to Capital

The macroeconomic turbulence of 2023 affected companies' ability to accurately price capital, resulting in a decline in loan and corporate bond volumes. However, with stabilized markets, Australian borrowers are expected to tap international lenders for deal activity and refinance existing capital. Financing markets are buoyed by the general strength of companies' balance sheets, with low credit defaults and signs of credit stress in the system.

Private Equity's Role in M&A

After a stint on the sidelines in 2023, private equity is anticipated to play a more significant role in public market M&A as stability persists. EAC Partners sees private equity and private capital providers becoming key players, particularly once inflation moderates. Expect innovations and novel structures to sculpt the landscape of private capital-linked M&A.

Charting the Course Ahead

Bankers generally are reporting full pipelines of interested transactors, but a spike in M&A volumes hinges on clarity around interest rates and inflation levels. There is a willingness to pursue activity amid sustained benign conditions, with an increased appetite to accept complexity in transactions.

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As the M&A and financing landscape evolves, ensure your business is positioned for success. Reach out to us to navigate the complexities of dealmaking with confidence in 2024 and beyond. For more information please contact us at [email protected] or visit our website at https://www.eacpartners.com.au/.