Deal makers hold their nerve as H2 takes off

• First six-months of 2024 sees global M&A up 18% to $1.5trn
• US drives recovery while UK leads European resurgence
• Fall in Q2 and lacklustre mid-market signals note of caution

With at least 97 countries going to the polls this year, almost half the world’s population will be voting – and at the year’s half-way mark, the majority of elections are still to be called. For deal-makers, this presents another ‘unknown quantity’ in an already highly uncertain environment, characterised by geopolitical unrest, economic stress and inflationary pressures. And yet, so far, M&A markets have shown promise, buoyed by record high stock prices in the US and stabilising interest rates. Looking at the data, LSEG’s Deals Intelligence experts, Matthew Toole and Lucille Jones, ask what this all means for the next six months.

After a very bumpy few years in M&A markets, including two years of consecutive declines in overall deals activity, all eyes have been on 2024 as improving macro-economic conditions gave hope for a recovery.

Six months in, the headline data is promising: global M&A is up 18% on the same period last year, reaching $1.5trn, with mega-deals increasing by 70%.

It’s been a very US-centric and large-deal oriented recovery so far. All but three of the largest 20 deals in the first half of 2024 involved a US target, all but four were entirely US-domestic affairs. It was the region’s largest share of world-wide M&A in almost a quarter-century.

Technology was the biggest sector for M&A, with companies racing to get a foothold in AI and related technologies, while strategic mergers between US oil businesses made energy & power the second largest sector by value.

However, there is fly in the ointment: 2024 is the biggest of elections years across the world, with most still to be called at the year’s half-way mark.

Deal-makers are using every window of opportunity they can to get deal processes moving, but there may be more windows on a submarine. By the time Europe has returned from its August break, and the US Labor Day celebrations are finished in September, it will be election-fever time, particularly in the US.

A slowing deals trajectory between April and June also gives a note of caution. In the second quarter, worldwide M&A announcements were down 11% from the opening three-months, and a quarter lower than the same period last year, as hopes for interest rate cuts faded.

In addition, a pessimist might point to a concerning disequilibrium in the M&A rebound so far. While mega deals might be expected to lead the way, and they certainly have, there is little sign that the smaller or mid-markets are taking the hint.  Deals of $500m and less fell by 11% to $360bn compared to the first half of 2023, dropping to levels not seen for more than a decade. Meanwhile the number of mid-market deals fell by almost a quarter. See this interactive graph below:

A further boon to the market has been a significant uptick in buyouts, as private equity firms ramped up their activity, after a lull in 2023, to account for almost a quarter of all announced deals in H1. M&A deals backed by financial sponsors totalled $370bn, a 36% year-on-year increase, as a stabilising interest rate and financing environment improved confidence for private equity buyouts.

Explore H1 deal making activity thus far for 2024 through our interactive report here.

More positively, the recovery is spreading tentatively eastward, across the Atlantic. European M&A deal announcements increased 39% in H1 to reach a two-year high of $343bn. Indeed, Europe was the only region that managed to continue growing throughout the second quarter of the year. The tally has been driven in particular by strong interest in UK target deals, which represented more than a quarter of the region’s announced transactions – demonstrating that a strong M&A market does not necessarily rely on political continuity.

By contrast, there is no disguising the fact that Asia-Pacific has failed to rebound from the post-Covid M&A boom-bust. The region’s M&A tally of $226bn was almost a quarter down on last year and the lowest level for more than a decade.

Part of the mega-deal centric recovery is a function of record high US stock markets. So far this year, 22% of M&A deals have used stock, in all or part, as one would expect in a buoyant equity market amid higher interest rates. As a result, some of the largest deals have been paper affairs, such as the all-stock merger of Discovery and Capital One.

On the flip-side, an increasingly protectionist trend across the world in recent years has lengthened completion times – and hence market uncertainty – in recent years, with average completion times extending beyond 200 days in 2023. Some of the largest deals have taken up to two years to achieve US anti-trust clearance. However, there are signs that authorities are speeding up their approvals process, with that figure falling in the first half of 2024 to an average 187 days (that’s about six-and-a-half months).

The general volatility of the market in recent years maps well on to the M&A advisory rankings.

With the exception of Goldman Sachs’s dominance, there is little clear pattern among the top ten global M&A advisers, with the emergence of boutiques further disrupting the competitive landscape in recent years.

So far, equity capital markets have played a subdued role in the recovery, with equity market growth of some 10% driven largely by follow-on and convertible offerings. Pre-IPO filings are starting to pick up in the US, but there will be a very sharp eye given to the available windows of opportunity, amid a packed news calendar.

By contrast, debt capital markets have continued to be a major driver of corporate activity from the post-Covid boom onwards. Global debt issuance in the first half grew 11% to a three-year high of $5.4trn, and the number of offerings reached an all-time high of 16,000 bond offerings.

Meanwhile, high-yield bonds have had a busy six-months, rising 83% on the same period last year, to hit $222bn, potentially signalling a return to more cash-and-debt funded M&A and buyouts.

While there has been some retreat in bond issuance in the second quarter, the market conditions look strong, even prior to any improvement in the interest rate environment.

Dealmakers must tread carefully over the next six-months. While there is plenty of uncertainty and volatility in the market, there are also significant pockets of activity and promising windows of opportunity emerging. Quality insights have never mattered more. 

To tune into the webinar on demand to gain further insights into the evolving deal making landscape in 2024 access the recording here.