Resilient Dealmakers Expect Stability in U.S. M&A Market in 2024

Having developed strategies to work within a strained dealmaking environment, business leaders anticipate a steady flow of activity in the coming year

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Despite difficult financing conditions, stubborn inflation, and high interest rates, dealmakers continue to find solid footing in the U.S. M&A market by forging creative, new strategies to drive deal activity. That’s according to Dykema's 19th annual M&A Outlook Survey, which polled more than 260 senior executives and advisers engaged in M&A activity across the nation.

While dealmakers recognize that deal flow will not return to the frenetic pace of 2022, most expect the U.S. M&A market to improve over the next 12 months. Many respondents remain optimistic about the broader U.S. economy, and one-third anticipate no change—nearly double the amount from last year’s survey. Overall, dealmakers are expecting last year’s economic headwinds to persist into 2024—and that little else will change.

“Having soldiered through a year of unfavorable market conditions, dealmakers have found ways to adapt—and even thrive—in a slightly quieter market,” said Jeff Gifford, Co-Leader of Dykema’s Corporate and Finance practice. “In response to today’s weaker pipeline of megadeals, many have pivoted to small and mid-sized deals, while others have embraced alternative funding arrangements. Most importantly, they appear confident in their ability to adapt to today’s slower deal pace and slumping valuations.”

M&A players are also taking a more deliberate approach to dealmaking. Representations and warranties insurance has become more prevalent in large transactions greater than $50 million, as well as smaller deals. Further, more than two-thirds of respondents have spent more time in due diligence and experienced delays in deal completion in 2023—and a strong majority expect those trends to continue into the following year.

“Risk-averse dealmakers are taking advantage of the M&A market slowdown by identifying the right deals and executing them with care,” said Joseph DeHondt, Co-Leader of the firm’s Corporate and Finance practice. “Looming ESG disclosure rules and heightened regulatory scrutiny are likely to bring further complexity to the dealmaking process—so it tracks, then, that dealmakers are taking a cautious approach for the time being.”

When it comes to AI, three in four dealmakers believe the technology will have a meaningful impact on M&A processes and efficiencies. Respondents believe investment in automation and AI is one of the top three trends driving M&A activity across multiple sectors, including financial services, healthcare, and manufacturing. Even so, dealmakers must overcome the ethical and cybersecurity concerns related to AI’s incorporation into the M&A process.

Other significant findings in the report include:

  • Almost half of dealmakers say third-party equity investments have become more common, and nine in 10 have worked on deals involving seller financing within the past year.
  • According to respondents, the top three factors likely to spur M&A activity in 2024 are improved financial markets, availability of capital, and inflation moderation.
  • Close to three-quarters of dealmakers say it is likely they’ll be involved in a transaction in which the buyer or target company is screened for ESG risk.
  • Seventy-one percent of M&A dealmakers anticipate acquiring companies offering AI capabilities, or those that successfully implement AI solutions in their businesses, in the next year
  • Respondents anticipate the energy, financial services, and healthcare sectors to see the highest volume of M&A activity in the next 12 months. As compared to 2022:
      • Energy and financial services swapped spots as 1st and 2nd, respectively.
      • Healthcare rose from 4th to 3rd.
      • Cannabis fell from 5th to 8th.
      • Automotive plummeted from 3rd to 10th, after five years as a top-three sector.

The full report is available here.