M&A forecasts: exit pressure grows

The first half of the year has not been as good as forecasts expected, but macroeconomic factors augur a recovery of the M&A market by the end of 2024, despite the current uncertainty.

Exit pressure is growing because the more time passes with a reduced number of M&A deals, the more the need for these deals grows. There is pent-up demand, especially from private equity funds. In addition, companies are turning to deals to accelerate growth and reinvent themselves in a time of change and dynamic environment: artificial intelligence is revolutionising business models across the board. CEOs’ desire to drive growth for their companies in a low-growth economy where organic growth is not easy also creates M&A opportunities.

Private equity funds have their sales portfolios full

According to PitchBook data, private equity firms had more than 27,000 portfolio companies worldwide at the beginning of 2024. Many private equity firms are in the process of raising funds and have some urgency to sell.

Uncertain environment forces continous adaptation

Today’s macroeconomic, geopolitical and technological factors create a disruptive and complex environment that forces companies to continuously innovate and reinvent themselves. In this situation, M&A is the ideal strategy to acquire new capabilities, talent and technology or to divest non-core assets.

AI is here and it will change almost everything

The impact of generative AI is already beginning to be significant in business and society. And in the near future, it will generate huge cost efficiencies, create new sources of revenue, improve the value proposition… Forecasts suggest that this is another factor that will require companies to re-evaluate their business models, their strategies, their markets…

Organic growth forecast to stagnate

The macroeconomic environment makes it increasingly difficult for companies to grow organically. Many will have to resort to M&A to achieve inorganic revenue growth.

M&A forecasts: sectors that will be most active in the market

The move towards electromobility will generate M&A deals between automotive manufacturers and the technology sector or the mining of materials essential for battery production.
Some of the pharmaceutical industry‘s most important patents will expire in the coming years. Companies in the sector will use M&A to acquire biotech companies.
Energy companies in renewables and also in fossil fuel production, seeking to gain efficiency gains through size and access to new oil and gas reserves.
Again, the technology sector will see major deals between companies in AI, cybersecurity, cloud storage…

Conclusion

None of the macroeconomic factors mentioned in this article will disappear in the short term. So the big question is not whether M&A will pick up again, the question is when. And we have reason to believe that it will be in the coming months.

Because at Confianz we are already detecting an upturn in activity among sellers. Many are preparing for sale, developing business plans and conducting sales due diligence. Our forecast is that more quality assets and businesses will come to market in the coming months.

By Álvaro Mendiola