In 2023, there has been a notable resurgence in merger and acquisition (M&A) activity across various sectors of corporate America, as reported by Marketplace. Following a steep decline observed in the two previous years—2022 and 2021—companies are beginning to engage in discussions about potential mergers. However, the pace of these activities has not matched the expectations set earlier this year.
Brian Quinn, a corporate law professor at Boston College Law School, highlights the complexities involved in making merger decisions, underscoring that executives prefer to assess the stability of the broader economy before proceeding with acquisitions. Quinn stated, “Executives want to look ahead, and have a general idea of what the future is going to hold with respect to the macroeconomic environment, whether or not they can make money, given the models that they put together.”
Experts in the field, including Christina Sautter, a mergers and acquisitions legal expert from Southern Methodist University, deem the current economic climate as somewhat cautious. She noted that uncertainty persisted regarding the macroeconomic and political landscapes during 2024, which hindered more aggressive pursuit of deals.
A crucial factor influencing business leaders' decisions this year has been the movements of the Federal Reserve in adjusting interest rates. Many were hopeful for reductions prior to September 2023. With President-elect Donald Trump likely set to assume office, Sautter predicts that his administration may adopt a lenient stance towards mergers, potentially catalysing deal-making activity. She remarked, “I think that is really going to push deals forward,” as expectations of further interest rate cuts loom, which could decrease borrowing costs for companies contemplating mergers.
On the other hand, Suzanne Kumar, an executive vice president at Bain & Company, conveyed caution regarding the extent of interest rate reductions. She expressed that although the Fed may bring rates down, they will still be relatively high compared to the previously low rates that contributed to an explosion of M&A activity in 2021. Kumar stated, “This shift towards lower interest rates will still end up at a place that is likely to be relatively high versus the very heady days of early 2021.”
During that peak period, valuations were incredibly favourable for companies poised for acquisition, leaving a lasting impression on sellers. However, Kumar observed that there appears to be a convergence in the expectations between buyers and sellers, suggesting that if this trend continues, the M&A landscape could potentially see an increase in deal activity in the near future. The overall sentiment, therefore, indicates a complicated yet evolving atmosphere for mergers and acquisitions as businesses look ahead to 2024, navigating both economic indicators and political uncertainties.
Source: Noah Wire Services