A review of the worldwide M&A marketplace (2024)

A session report from the IBA’s 21st Annual International Mergers & Acquisitions Conference 2024

Wednesday 5 June 2024, 0900-1000

Session Chair

Adam O Emmerich Wachtell, Lipton, Rosen & Katz, New York

Speakers

Anu Aiyengar JP Morgan, New York

Michelle F Davis Bloomberg, New York

Liz Hoffman Semafor, New York

Lauren Thomas The Wall Street Journal, New York

Reporter

Pablo Iacobelli Carey y Cía, Santiago

Introduction

Anu Aiyengar, a distinguished investment banking professional, began by sharing her insights on the current worldwide state of the mergers and acquisitions (M&A) market, which she described as a ‘turbulent environment’, with most of the activity concentrated in the United States (US) and the United Kingdom (UK). The topics for discussion ranged from M&A drivers and challenges, and the impact of artificial intelligence (AI), to the worldwide electoral climate and regulatory environment.

Anu Aiyengar’s presentation

Turbulence ahead

M&A volumes in 2024 might reach US$3.6–3.7tn, similar to the levels achieved in 2020 and 2022. Some key aspects to take into account are the following:

• there is a steadier pace, compared with 2020 and 2022, which saw uneven activity in different parts of the year;
• there are a variety of targeted industries, with no single sector outmatching the others; and
• regarding consideration, there is an increase in common share transactions, as well as an overall reduction in cash-only transactions.

Targeted regions

In terms of the most active regions, much of the M&A activity is focused on the US and UK, with the Asia–Pacific region falling particularly behind in the year to date.

The UK has nearly doubled its 2023 volumes, representing 37 per cent of Europe, Middle East and Africa (EMEA) volumes, with the underappreciation of UK share prices continuing to be a challenge for boards and shareholders.

A soft landing is predicted for the US economy (ie, modest growth, along with declining inflation and interest rates), with an ‘amazingly resilient’ US consumer market. Even though the growth estimation is moderate, the US is still the market with the highest degree of confidence, with estimates of an impending recession halving in the last year, despite the ongoing geopolitical risks and long-term inflation drivers.

M&A drivers: the three Ds, growth and corporate clarity

Three major themes are currently driving strategic M&A activity:

• deglobalisation: triggered by the disruption of supply chains during the Covid-19 pandemic, there has been heavy policy support in the US for on-shoring or near-shoring supply chains;
• decarbonisation: investment in energy transition cuts across various sectors, with global investment growing threefold from 2019 to 2023. Even though most of the capital is provided by the private sector, government funds could function as a catalyst; and
• digitalisation: it is still difficult to determine the right level of technology spending for a company in any given sector. Investment has been driven again by policy support, with huge investment in AI.

Additionally, a significant factor driving valuation is not so much revenue, but consistent, profitable growth at scale. Furthermore, while in the past, practitioners have been very innovative in terms of the advantages offered by complex corporate structures, today a larger number of segments can lead to a lower valuation. Thus, investors nowadays encourage corporate clarity.

Private equity

Public listed companies in the US have decreased in the last 20 years, primarily driven by the rise of private equity. However, the standard procedure of buying a business, improving it and monetising it, is ever more difficult and time-consuming, which is driving a trend towards partial monetisation and longer holding times.

Board evolution

One of the most visible changes in the last few decades is the increasing level of diversity among the board of directors, particularly the increased representation of women. However, female representation among high-level executives is still lacking.

Panel discussion

Elections

Liz Hoffman shared her thoughts on the current influence of worldwide elections on M&A deals. A current example is the acquisition of US Steel by Japan’s Nippon Steel, which has encountered strong, unforeseen, political pushback in the US. Lauren Thomas raised the point about the potential impact of an eventual Trump administration on big tech.

Aiyengar explained that she sees a difference in the litigation trends, with a big number of deals being investigated by the US Federal Trade Commission (FTC) and the US Department of Justice (DOJ) under the Biden administration, but higher uncertainty under a Trump administration.

Regarding the recent election in Mexico, Michelle F Davis stated that, even though a lot of people in the private sector seem to be disappointed by the outcome, it is likely that we will see something similar to the situation over the last six years. She suggests that there could be a possible increase in healthcare M&A under a Trump administration.

The key point made by Aiyengar was that, if there is more regulatory uncertainty, we will see more M&A in healthcare, biotech and tech, more generally. The main problem revolves around an increased challenge for practitioners in advising clients in unprecedented regulatory scenarios. Buyers are now setting aside money for litigation and retention payments, and that is being seen an incremental cost of doing a deal. Finally, the speakers agreed on some sources of uncertainty, such as labour and competition/antitrust regulations, as well as increased union activity. This has led to several deals falling apart in the final stages due to external risks.

Deal timelines and completion

Davis asked about the current trends in regard to deal timelines. Aiyengar was of the view that deal timelines are not compressing. Even though buyers are being open-minded and more realistic in terms of valuations, and even though financing is available, most buyers don’t want to take any risks, and spend a lot of time on the due diligence process. Furthermore, if problems arise, while in the past parties tended to work towards solving them, today the deal can fall through immediately.

The impact of AI

Hoffman remarked that, even though AI is constantly being discussed in the business environment, we still haven’t seen any huge M&A targets in this regard. She also asked about the influence of AI on the way deals are done.

Aiyengar highlighted the JPMorgan experience with AI. The company has more than 2,000 large language model (LLM) programs.

Davis asked Adam Emmerich about potential changes to the law firm billing model, considering how many tasks can be replaced by AI. Emmerich stated that it’s still too early to predict, with law firms being way behind in terms of AI implementation. However, he believes the staffing model will definitely change.

Davis raised the point that, given that AI models need a lot of data to work best, most of them will remain open-source and not competitive, which could drive off M&A possibilities.

Unsolicited bids

Even with a big gap in valuations, there hasn’t been a dramatic uptick in unsolicited bids, said Thomas. Aiyengar remarked that last year there were decade-high levels of unsolicited, yet not hostile, bids, as people were comfortable making an overture but were not trying to force acquisitions.

Shareholder activism

Thomas commented that there are fewer fights in the boardroom and a lot more settlements, even though activists may seem less active, with less M&A. Aiyengar highlighted the rise of multi-strategy asset managers, which are far more complex than just activism, as each one may have different strategies and goals. Furthermore, there has been a massive fund flow from active to ‘passive’ asset managers and, as a result, boards might get frustrated with valuations. The inclusion of an activist on the board might be less disruptive than a proxy fight, but not always, so companies have implemented a diversity of strategies in this regard, according to their own particular past experiences.

Corporate clarity

Corporate clarity has been pushed by activists, and also by companies themselves, added Davis. She asked whether this could favour M&A in the long term.

Aiyengar believes that M&A is still valuation motivated, and structural decisions, such as spin-offs or sales, are mainly influenced by the regulatory environment, especially antitrust law. A strategic trade might secure better value, but it also implies a longer transaction and possible litigation.

Financing availability

Aiyengar doesn’t know of any deal that did not happen because financing was not available. ‘I honestly think that’s more of an excuse than a reality’, she said. On the private equity side, it is more of a cost of financing problem, with the increasing cost of debt and a lower exit multiplier, which make the calculations more challenging. Aiyengar referred again to the regulatory environment as a bigger problem. Many parties, she said, pay too much attention to the wrong metrics, such as the impact of the deal’s announcement on stock values. However, when stocks go up a lot, it also comes with more scrutiny from the FTC and DOJ.

Bank M&A

Thomas asked about eventual consolidation in the banking industry. Aiyengar believes M&A within the banking industry, such as the acquisition of First Republic Bank by JPMorgan, should be treated as isolated incidents, and has confidence in the stability of the broader banking system, as the environment for bank M&A is ‘even tougher’.

Responsible journalism

A member of the audience asked the three journalist speakers about their criteria for writing stories in an unpredictable field, such as M&A. The speakers agreed that they always wait until they are completely sure about a deal before they write about it. Davis added, however, that stories about M&A deals are being published increasingly early.

Disclaimer

The information contained in this report is of a general nature and intended to be educational. Any applicability of the rules should be reviewed with legal counsel. Nothing in this report should be construed to constitute investment or legal advice in any manner, shape, or form.