Deloitte M&A Index 2024 Q1
Given the relatively stable number of transactions in the previous two quarters and the slightly improving economic environment, the Deloitte M&A Index predicts only a slight decline in the number of transactions for the current quarter. The prediction expects 2,506 transactions, which is similar to the previous quarter, while the pessimistic forecast predicts 1,905 transactions.
"If, on the other hand, the pessimistic scenario were to materialise, we could expect a decline to 1,905 transactions. However, such a possibility would only be conceivable in the context of significant market turbulence, with Germany and the United Kingdom falling into a deeper recession and uncertainty prevailing regarding the pace of interest rate cuts. These circumstances could then slow down the rapid recovery and potentially cause a more significant market decline. Despite the possible decline in the number of transactions in the current quarter, there is still reason for optimism, supported by expectations of lower interest rates and continued economic recovery. Active portfolio management, including strategic acquisitions and divestitures, remains key for companies operating in a volatile market environment," explains Miroslav Linhart, lead partner in Deloitte's financial advisory department.
Strategic acquisitions, partnerships and, above all, sales and carve-outs remain an essential part of risk management. Investors must continue to carefully evaluate their corporate portfolios and consider divesting non-core assets as part of ongoing transformation strategies. Such steps enable companies to adapt and thrive in an ever-changing environment. In the coming period, we can expect a primary increase in transactions in the small and medium-sized enterprise market, mainly due to the active implementation of strategic growth programmes. These transactions are expected to form a solid foundation for the anticipated positive market development in the future.
Mergers and acquisitions markets continue to be supported by cash balances of unallocated private equity capital, which stood at approximately USD 2.49 trillion at the end of last year. Financial and strategic investors are expected to re-enter the market at an accelerated pace this year and, supported by the surprisingly good condition of the banking sector, continue to seek investments in high-quality assets, such as companies with a strong market position, a long history or a functional business strategy.
"Cash reserves and unallocated private equity capital continue to strengthen the M&A markets, with investors ready to capitalise on strategic acquisitions. Given the continuing economic uncertainty, a prudent approach to valuation and strategic capital allocation is proving to be a key factor in navigating the ever-changing M&A environment," adds Jan Brabec, partner in the corporate finance department at consulting and technology company Deloitte.
Summary of the M&A market for 2023
Global developments and politics continue to influence the markets. The war in Ukraine continues and could reach a stalemate. There is also a risk that China may invade Taiwan, and tensions in the Middle East have increased as a result of the conflict between Israel and Hamas. Although the impact of these geopolitical events on financial markets, supply chains, oil and other commodity prices is not entirely measurable, it is clear that the global economy is becoming more fragmented.
Despite the growing number of global conflicts and political tensions, coupled with tight monetary policy, 2023 developed as a period of consolidation that effectively averted an impending economic recession. Relatively stable commodity prices played a key role in supporting disinflationary tendencies throughout the year. However, households and many businesses, especially in Germany and Central and Eastern Europe (CEE), faced persistent economic challenges that constrained household consumption – the main driver of economic growth.
This problem is exacerbated by continued low consumer confidence, although there was an improvement last year compared to 2022. A confluence of factors, including persistent inflationary pressures and a cautious growth outlook, weighed on the economic environment throughout last year.
In addition, the number of transactions continued to decline over the past year, from 15,249 in 2022 to 11,629 in 2023, a year-on-year drop of 23.7%, bringing the total volume of transactions closer to pandemic levels. In addition, the total value of transactions recorded a significant year-on-year decline, namely by 34%.
The European market lagged behind the US and global markets in terms of the number of transactions last year – the European market (27 EU countries + UK) recorded a decline of 23.7% compared to the global market, which fell by 20%, and more significantly behind the US market, which saw a decline of 13.5% in the same period. The overall decline in market activity can be attributed to higher interest rates, ongoing geopolitical tensions and a generally negative economic outlook in Europe.
With the exception of Bulgaria and Luxembourg, all European M&A markets experienced a rapid decline in the number of transactions. The most affected regions were Cyprus (-53.7% year-on-year), Malta (-46.2% year-on-year) and Lithuania (-40.6% year-on-year). Germany and France saw the number of transactions fall by around 30%, and other major European markets (Italy, the UK and Spain) saw a decline of around 20%.
The manufacturing industry continued to maintain its dominant position in mergers and acquisitions, accounting for 28% of the total number of transactions last year. It was closely followed by the technology, media and telecommunications (TMT) sector with 25%, and retail moved to third place with 17%. On the other hand, the financial sector recorded the largest decrease in the number of transactions between 2022 and 2023, from 19% to 8%.
You can download full version of Deloite M&A Index which includes complex summary of year 2023 here.
