By Mark Williams, Datasite Chief Revenue Officer, Americas
If first-quarter M&A activity is any indication, 2024 has the potential to be a good year for M&A. However, while dealmakers are experiencing a notable resurgence, globally, M&A levels are still faring below pre-pandemic heights.
Q1 Shows Signs of Global Recovery
A flurry of large deals fueled the first-quarter of 2024, as global announced M&A activity rose 30% compared to the same time a year ago. This surge initially appeared on Datasite’s platform, which facilitates around 14,000 new deals annually, in the second half of 2023. For example, new global sell-side deals launched on Datasite, which facilitates deals at their inception, rather than announced, rose 14% year-over-year in Q4 2023, forecasting the positive shift. Additionally, in Q1 2024, global activity on Datasite is up 10% compared to the same period a year ago, providing a further glimpse into the M&A resurgence.
Some of the revival is the result of successive interest rate hikes by the Federal Reserve and other central banks to counter rising inflation. This has enabled dealmakers to operate with more certainty, allowing them to effectively plan.
New Sector Opportunities
Some of the M&A recovery is also due to strong sector opportunities. Driven by demands for sustainability, innovation and wartime defense, M&A activity for technology, energy and industrials has significantly increased.
Though technology, media and telecoms (TMT) deal-kick offs on Datasite dipped year-over-year (YoY) by 5% in Q4 2023 and are off 3% in Q1 2024, activity is expected to rebound, fueled by transformational technology-focused deals. Additionally, life sciences and biotech may see increased dealmaking, driven by growing consumer momentum behind solutions for aging populations, longevity, and health and nutrition innovation. The increasing demand for digitization and technological innovation is also expected to continue to drive investments in climate tech and cleantech, which totaled over $31 billion between 2019-2021.
A YoY 7% increase in Q4 2023 and a healthy 19% uptick in Q1 2024 deal kick-offs on Datasite shows that the industrial sector is also experiencing a revival. Manufacturers are looking for innovative technologies, digital assets, and supply chain resilience, investing in automation to improve efficiency and business processes, as well as investigating the possibilities of generative artificial intelligence (GenAI), especially around productivity. In fact, when it comes to productivity and speed, AI is a top item on dealmakers’ agendas. Almost half (42%) of 500 global dealmakers identified productivity as the most significant benefit of using AI.
Choosing Quality Over Quantity
Dealmakers are remaining focused on quality over quantity and continue to proceed with caution. Deal completion rates dropped to 45% from 49% in 2023 – indicating that there is more deal scrutiny, with longer and more thorough due diligence processes, including more content. Last year, content associated with new deals on Datasite increased by double digits compared to a year ago; and this trend shows no signs of slowing this year, with first quarter content up YoY by more than 40%.
Additionally, several other factors can pose potential disruption to M&A in 2024, including inflation, employment trends, elections, and regulatory changes. For the industrial sector, cyber security and natural catastrophes are also expected to be among the biggest challenges in 2024.
Still, the impact of disinflation is kicking in, with valuations becoming easier, creating greater comfort in pursuing deals. Looking ahead, most dealmakers expect Q3 2024 to be the turning point for M&A.
Whatever happens, dealmakers are intent on successfully navigating yet another ‘new normal’ for the M&A industry.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
