2024 Declining M&A reasons discussion
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What are the possible reasons of the M&A downshift in the middle of 2024:
– because 2024 is an election year,
– the counterbalance is pent-up demand going into the year, or
– interest rates increase.Hi Iryna,
Great question! Several factors could indeed influence the downshift in M&A activity in the middle of 2024.
Firstly, being an election year, political uncertainty often causes companies to adopt a wait-and-see approach. Businesses might delay major strategic moves, including mergers and acquisitions until there is more clarity on the political and regulatory landscape post-election. This uncertainty can create a temporary slowdown in M&A activity.
Secondly, pent-up demand going into the year is also a significant factor. Suppose there was high M&A activity leading up to 2024. In that case, companies might have already executed their major deals, leading to a natural slowdown as they focus on integrating those acquisitions and capitalizing on synergies.
Lastly, increasing interest rates play a critical role in M&A dynamics. Higher interest rates increase the cost of borrowing, making it more expensive for companies to finance acquisitions. This can deter companies from pursuing M&A deals, primarily if they rely heavily on debt financing. Additionally, higher rates can impact valuations and make deals less attractive financially.
Political uncertainty, market cycles, and interest rate changes can individually or collectively contribute to a downshift in M&A activity. It will be interesting to see how these elements interplay through 2024.
My view is much like the others. In the United States, economic circumstances including increased interest rates, reduced discretionary spending, cost of energy, and other categories have put stress on companies in some industries.
I also agree that the uncertainty in play due to this being an election year and the divisiveness of the two parties, has played a role in slowing down decision making.
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