Dealmaking in 2024: Where Will M&A Go?

In the face of numerous challenges, M&A activity is showing positive signs for growth in the next six months. Where do the opportunities exist? In this episode, we look at the data and unpack key findings from the SS&C Intralinks Deal Flow Predictor for Q4 2023.

Dealcast is presented by Mergermarket and SS&C Intralinks.

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Dealmakers, are you ready for 2024? Read our new report, 9 M&A Dealmaking and Financing Trends in 2024, to understand the factors that will impact M&A and strategic financing in the next 12 months. 

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Transcript

Julie-Anna (00:05): Welcome to Dealcast, the weekly M&A podcast presented to you by Mergermarket and SS&C Intralinks. I'm Julie-Anna Needham, a business journalist who's been covering M&A for a decade. In this week's special episode, we are looking at the latest SS&C Intralinks Deal Flow Predictor. This is based on data from the company's due diligence platform and highlights a number of trends in M&A. I'm joined by Matthew Wells, who is the vice president of global product marketing and strategy at SS&C Intralinks, to discuss the findings from the fourth quarter edition of the Deal Flow Predictor.

(00:46): Hi Matt. Thanks for joining me today.

Matthew (00:49): Hi Julie-Anna. Thanks for having me again.

Julie-Anna (00:51): So, let's start by looking at an overview of M&A activity globally. The Deal Flow Predictor is forecasting global fourth-quarter M&A levels to be ending on a positive note. Can you tell us more about that, please?

Matthew (01:07): That's right, Julie-Anna. We're definitely seeing positive trends in the data. When we look at early-stage deal activity on our platform, it tends to be about six months away from announcement on average. While I wouldn't say M&A is poised to take off like a rocket ship, I would say we're confidently forecasting global announced deal volume to see moderate growth over Q4 2022 and marginal growth over Q3 of this year. In fact, according to our data, May 2023 saw the third-highest amount of early-stage deal activity on our platform since 2021, and that was surpassed by June of this year. So, yes, I'd say we're likely to end the year on a positive note at least when it comes to growth in M&A deal volume.

Julie-Anna (01:51): Thank you. Now, can we talk about the recent IPO resurgence? A few months ago, it looked like it was great news, but perhaps less so now. Can you call it a resurgence and what's the Deal Flow Predictor's view on the equity capital markets?

Matthew (02:10): Yeah, admittedly the word resurgence might be a bit strong, however, it certainly feels that way after what we saw in 2022. I'd prefer to use the term stabilizing when discussing the IPO market and the data and the DFP backside up showing material increases in early-stage IPO activity. The US IPO market in Q3 saw three IPOs raise over USD 500 million, including one of the largest IPOs in the past 20 years. But unlike 2020, the market is highly selective and really only ripe for companies that fit the right mold. We're seeing the biggest bumps to early-stage IPO activity and have the highest forecast both, both on quarter over quarter and Q4 23 over Q4 22 basis in both APAC and North America.

Julie-Anna (03:00): And I'm guessing the IPO that you're talking about, there is the Arm one, which was very successful at the beginning, but as the share prices dropped down a bit since then. So, can we have a look at the different regions now, starting with Asia Pacific? It's generally more positive news there, but there are still some clouds on the horizon, aren't there? Can you tell us a bit more about that, please?

Matthew (03:24): Sure, you're right. Generally positive news with a strong rebound in China fueling much of the growth in the region. We're anticipating double digit gains in deal volume for the region on both a quarter-over-quarter and quarter-over-quarter yearly basis. This does mask the fact a bit that China's dealing with a real estate and debt challenge that could dampen deal activity. Thus, we're not expecting these large boosts in deal volume to continue for a prolonged period of time. From a sector perspective, some of the strongest performance we're predicting will come from the financial sector in Australia, retail in China and manufacturing in Japan.

Julie-Anna (04:02): Thank you. And turning our attention to the EMEA region, obviously, in the Middle East part of that region, there are some major geopolitical developments happening at the moment, but can you talk about what the Deal Flow Predictor has shown and what activity you are seeing positive but flatter growth and what can you expect to see in the next couple of months?

Matthew (04:26): Yeah, geopolitical activity aside for the moment, we're not seeing the same spike in growth in EMEA as we're forecasting for APAC. However, the region continues to demonstrate remarkable stability despite the headwinds it's been facing for the better part of two years. We saw strong early-stage activity out of France, Italy, and South Africa, and are predicting growth in the amount of deals announced in Q4 2023 compared to Q4 2022.

Julie-Anna (04:55): And what are the interesting sectors?

Matthew (04:58): Some key sector-driven performance is expected to come from banking in the Netherlands, utilities in Italy and retail in France.

Julie-Anna (05:05): And looking towards the West now and North America. The Deal Flow Predictor states that there is material stress in early-stage Canadian activity, meaning the region's expecting a material drop in fourth-quarter volume against the third quarter of this year. Can you talk us through that trouble and talk about what's happening in the U.S. as well, please?

Matthew (05:29): Sure. In North America, we're looking at a market that's still recovering from a number of challenges while continuing to battle others from the banking crisis to inflation, leaving a lot of the key players like private equity largely on the sidelines for much of the year. Canada, in particular, is showing signs of a significant decrease in deal volume on both a quarter-over-quarter basis and when compared to Q4 of 2022 due to many of the same factors that have slowed dealmaking on the macro level. Overall, at the North America level, we're predicting the possibility of marginal upside with a chance to fall into slightly negative territory when compared to Q3 of this year and compared to Q4 of 2022.

Julie-Anna (06:10): Thank you. And so now on to Latin America, the Latin region showed resilience and stability in the second quarter of this year, and interestingly in June 2023, there was a second highest volume in early-stage activity for the past year and a half. Can you tell us more about the trends that you're seeing in the Latin American region and why the Deal Flow Predictor is anticipating double-digit uplift from the third quarter of this year to the fourth quarter and in Brazil in particular?

Matthew (06:42): Yeah. The story in the Latin region is definitely Brazil, where early-stage activity indicates significant uplift and predicted deal volumes on a quarter-over-quarter basis driven by deals in the banking and technology sectors. Argentina, somewhat surprisingly, despite inflationary pressures, is poised to post a gain in deal announcements in the double digits when compared to the same period last year as well as Q3 of this year. Overall, we're anticipating a marginal increase in deal activity for the region as a whole with Columbia and Chile weighing down forthcoming, announced M&A deals.

Julie-Anna (07:19): And rounding up. Can you talk through some of the possible challenges we can expect for the next couple of months and whether there might be a feeling of optimism for the year's end?

Matthew (07:29): The data does suggest feelings of optimism aren't unfounded at all, and deal makers are getting their arms around economic factors that seem to be stabilizing in most regions while dealing with new geopolitical challenges that could have an impact on dealmaking, which remains to be seen overall. The trends are there and the data does suggest a continued rebound of the M&A market from a volume perspective with a strong performance from the middle market. Aging PE portfolio companies, cash on corporate balance sheets and in private equity coffers will catalyze deal activity in the coming year. We do expect a continued lack of mega deals until traditional financing markets loosen up, but we are seeing alternative financing outlets, like private credit, fill the gap nicely for the right deal makeup. I look forward to coming on again and seeing if this prediction actually becomes reality.

Julie-Anna (08:23): Great. We'll look forward to that Matt. Thanks very much. That was Matthew Wells, vice president of global product marketing and strategy at SS&C Intralinks. Thanks for listening to this week's special episode of Dealcast, presented by Mergermarket and S&C Intralinks. Please rate, review, and follow the podcast. You'll find us on Apple Podcasts, Spotify, or look out for your Mergermarket news alert. For more information, have a look at our show notes. Join us next week for another episode.

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Dealmakers, are you ready for 2024? Read our new report, 9 M&A Dealmaking and Financing Trends in 2024, to understand the factors that will impact M&A and strategic financing in the next 12 months.