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The merger & acquisition (M&A) market has experienced significant volatility, from the pandemic-induced downturn in 2020 to a remarkable recovery in 2021, followed by a sharp decline in 2023. Global M&A activity for 2023 dropped by 16% to $3.1 trillion, contrasting with the soaring S&P 500 index, per Mckinsey. The performance was weaker than that was seen in the pandemic year 2020.
IQ Merger Arbitrage ETF (MNA - Free Report) has added about 0.6% in the past one year versus 28.3% gains in the SPDR S&P 500 ETF Trust (SPY - Free Report) (as of Feb 28, 2024). Meanwhile, AltShares Merger Arbitrage ETF (ARB - Free Report) added 5.3% past year while First Trust Merger Arbitrage ETF (MARB - Free Report) lost about 1.5% past year. ProShares Merger ETF (MRGR - Free Report) has advanced 5.8% past year.
The United States, a major M&A hub, witnessed its lowest activity relative to S&P 500 market value in two decades. Notably, global energy and materials sector made up the largest portion of 2023 M&A activities. However, signs of a turnaround are emerging, with recent months witnessing a surge in deal-making activity.
Factors Driving Optimism for 2024
Several factors contribute to a positive outlook for M&A in 2024: improving financial markets due to easing inflation and anticipated interest rate cuts, pent-up demand for deals, and strategic initiatives taken by companies to adapt and transform their business models, per PWC.
About 60% CEOs plan to sign one deal in the next three years, per PWC survey. Private capital has almost US$4tn of ‘dry powder’—capital which needs to be deployed or returned to limited partners. At the same time, private capital has about $12 trillion of assets under management (AUM), almost double the amount in 2019.
McKinsey expects robust dealmaking in APAC in the years to come as multinationals headquartered in slower-growing regions look for opportunities to expand, consolidate operations, diversify, and advance decarbonization and sustainability initiatives.
Sector-Specific Insights
Energy, utilities, and resources space saw a surge in megadeals in 2023. Technology remains a focal point in TMT, with software deals attracting private equity interest.
In pharma, large-cap companies pursue midsize biotech targets, emphasizing precision medicine and specific drug categories. Telehealth and health tech and analytics companies will continue to be attractive to investors and create opportunities for M&A.
However, financial services M&A is likely to remain subdued in 2024, per PWC. Megadeals, transactions exceeding $5 billion, declined sharply in 2023 but are making a comeback in 2024. Notable deals include acquisitions in energy, technology, and infrastructure sectors.
Valuations Attractive for M&A Deals
Enterprise value to forward EBITDA multiples for major indices rose by about 15-20% in 2023. However, forward multiples remain below three-year highs, indicating that valuations still have some room to run. Furthermore, the increase in multiples lags the overall increase in enterprise value, which implies the strong performance in the major stock markets in 2023 has been achieved on improving fundamentals and expectations.
Challenges in 2024
The anticipated upturn in M&A activity will likely be more gradual compared to previous surges. Deal-makers will face higher financing costs. Uncertainty in macroeconomic scenario (due to presidential election in the United States) and geopolitical crises heighten the importance of risk assessment.
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M&A to Bounce Back in 2024? ETFs in Focus
The merger & acquisition (M&A) market has experienced significant volatility, from the pandemic-induced downturn in 2020 to a remarkable recovery in 2021, followed by a sharp decline in 2023. Global M&A activity for 2023 dropped by 16% to $3.1 trillion, contrasting with the soaring S&P 500 index, per Mckinsey. The performance was weaker than that was seen in the pandemic year 2020.
IQ Merger Arbitrage ETF (MNA - Free Report) has added about 0.6% in the past one year versus 28.3% gains in the SPDR S&P 500 ETF Trust (SPY - Free Report) (as of Feb 28, 2024). Meanwhile, AltShares Merger Arbitrage ETF (ARB - Free Report) added 5.3% past year while First Trust Merger Arbitrage ETF (MARB - Free Report) lost about 1.5% past year. ProShares Merger ETF (MRGR - Free Report) has advanced 5.8% past year.
The United States, a major M&A hub, witnessed its lowest activity relative to S&P 500 market value in two decades. Notably, global energy and materials sector made up the largest portion of 2023 M&A activities. However, signs of a turnaround are emerging, with recent months witnessing a surge in deal-making activity.
Factors Driving Optimism for 2024
Several factors contribute to a positive outlook for M&A in 2024: improving financial markets due to easing inflation and anticipated interest rate cuts, pent-up demand for deals, and strategic initiatives taken by companies to adapt and transform their business models, per PWC.
About 60% CEOs plan to sign one deal in the next three years, per PWC survey. Private capital has almost US$4tn of ‘dry powder’—capital which needs to be deployed or returned to limited partners. At the same time, private capital has about $12 trillion of assets under management (AUM), almost double the amount in 2019.
McKinsey expects robust dealmaking in APAC in the years to come as multinationals headquartered in slower-growing regions look for opportunities to expand, consolidate operations, diversify, and advance decarbonization and sustainability initiatives.
Sector-Specific Insights
Energy, utilities, and resources space saw a surge in megadeals in 2023. Technology remains a focal point in TMT, with software deals attracting private equity interest.
In pharma, large-cap companies pursue midsize biotech targets, emphasizing precision medicine and specific drug categories. Telehealth and health tech and analytics companies will continue to be attractive to investors and create opportunities for M&A.
However, financial services M&A is likely to remain subdued in 2024, per PWC. Megadeals, transactions exceeding $5 billion, declined sharply in 2023 but are making a comeback in 2024. Notable deals include acquisitions in energy, technology, and infrastructure sectors.
Valuations Attractive for M&A Deals
Enterprise value to forward EBITDA multiples for major indices rose by about 15-20% in 2023. However, forward multiples remain below three-year highs, indicating that valuations still have some room to run. Furthermore, the increase in multiples lags the overall increase in enterprise value, which implies the strong performance in the major stock markets in 2023 has been achieved on improving fundamentals and expectations.
Challenges in 2024
The anticipated upturn in M&A activity will likely be more gradual compared to previous surges. Deal-makers will face higher financing costs. Uncertainty in macroeconomic scenario (due to presidential election in the United States) and geopolitical crises heighten the importance of risk assessment.