Middle Market Mergers & Acquisition (M&A) Outlook for 2024
If you are a current business owner contemplating selling your company or considering buying a business for growth you are probably wondering how challenging today’s market is for deal-making. With a variety of factors like wage inflation, rising material costs and higher capital costs influencing deals, forming a clear actionable M&A outlook is far from simple.
To Provide Some Perspective:
M&A activity has gone through a unique cycle over the past three years. Deal volumes reached historic highs in 2021 and early 2022 primarily driven by decades-low interest rates along with a perfect combination of moderate inflation, strong economic activity, elevated company earnings.
However, in 2022, major Central Banks around the world embarked on a historic tightening cycle reacting to an environment of persistently elevated inflation. As the cost of capital rapidly surged, slower global economic activity, increased macroeconomic uncertainty and heightened geopolitical tensions led to a severe pullback in dealmaking activity as evidenced in the chart below.
Source: MNP Middle Market M&A Update 3Q203. *Transaction count based on all publicly disclosed Canadian Transactions.
Outlook for 2024:
Strategic acquirers, private equity and other deal-makers have more upbeat expectations for M&A in 2024, although some caution remains after the volatility of the last few years.
For 2024, the M&A environment is expected to improve. Inflation has fallen and is getting close to the Bank of Canada / Fed’s target. Interest rates have stabilized and are expected to decline as the year progresses. Private credit has become more widely available and traditional credit markets are starting to improve. Equity markets, while still volatile, have regained lost ground and even hit new highs. But questions remain with economic uncertainty and geopolitical tensions. Here are some of the factors that will continue to drive M&A activity in 2024:
Continued retirement of Baby Boomers.
PE firms are sitting on a record amount of dry powder, which will likely spur M&A opportunities in the near future.
Small to midsize M&A deals are on the rise as valuations reset.
Strategic acquirers have continued to hunt for quality middle-market companies despite this period of slowness. High-performing companies with sustainable cash flows and demonstrated track records will always be attractive to the right strategic buyer despite a less-than-stellar market environment.
Citizens 2024 M&A Outlook based on a survey of mid-market and private equity firms seems to validate the more robust outlook for deal-making in 2024 as evidenced by the chart below.
Source: Citizens 2024 M&A Outlook
We at Distinct Capital Partners also believe that interest rates have peaked and will moderate a little during the course of the year, thereby reducing financing costs. We are still seeing a strong demand to deploy capital from private equity firms and other strategic buyers. Inquiries from business owners regarding the sale of their business continues to remain strong.
If you are considering selling your business, we at Distinct Capital Partners can help you navigate through this challenging environment. The Distinct Capital team will perform a high-level due-diligence at no cost to you to ensure you are ready to sell your business. If you are interested in learning more, please contact Gerard De Souza, Managing Director – Business Development at GDeSouza@distinctcapitalpartners.com or our general enquiry email at info@distinctcapitalpartners.com.