2023 was a year marked by a convergence of global crises that gripped the world and reshaped the political, economic, and social fabric. These challenges significantly impacted the global Service Providers (SPs) and the entire landscape of Mergers and Acquisitions (M&A). Despite demand, economic instability introduced delays and budget constraints while inflating operational costs for resource mobilization.
But as 2024 begins, the burning question is – will the challenging landscape persist and continue weighing down M&A activity? Or will tailwinds emerge, paving the way for a recovery?
Our analysis of the undercurrents driving recent M&A trends and markets indicates that the headwinds may start easing soon. Early signals point to a potential resurgence of deal-making through 2024. For Service Providers (SPs), this potential rebound warrants preparation to capture renewed enterprise interest in transformative inorganic moves.
What’s contributing to this cautious optimism is the stabilization of inflation and interest rates, abundant capital waiting to be deployed, adjustments in value expectations, and operational realities dictating portfolio restructuring for digital agility and resilience.
With these factors in play we foresee 6 key M&A trends in 2024 reshaping priorities in the Tech Services space. As boardrooms green light strategic transactions, SPs need to grasp these deal drivers.
A thriving M&A market hinges on accessible capital to finance transactions. Indicators on that front are positive – Private Equity (PE) funds raised nearly USD 1 Tn over the past year. Corporates too have stockpiled healthy balance sheets. As mega-deals pick up momentum, over USD 4 Tn could get deployed into new consolidations and integrations in the US alone according to Morgan Stanley.
While small and mid-sized transactions will likely dominate initial deal volume given the careful approach expected, we expect larger strategic transactions to rise as growth confidence improves during 2024.
With every passing year, technology cements its central role in driving competitiveness and differentiation. Despite depressed volumes in other segments, 2023 witnessed over USD 600 Bn flowing solely into global tech sector deals.
Firms will reshuffle their portfolios to acquire critical tech capabilities related to Analytics, Cloud, IoT, and AI/ML to keep pace with change. Adoption maturity curves have compressed drastically - enterprises must remain aggressive on the digital M&A front to survive. We expect outlays into transformative tech to accelerate in 2024.
Sitting on nearly USD 2 Tn of dry powder currently, PE firms need to identify promising investment avenues urgently. Many had held back on exiting portfolio companies in 2023 owing to unfavorable IPO and financing conditions. But with markets steadying, PE investors have to regain momentum on putting money to work.
This urgency coupled with deep reserves will propel PE firms to take center stage across Healthcare, Fintech, and Consumer/Retail sectors. Preparing portfolio firms for exit through eventual IPOs or strategic sales will be pivotal, lending further impetus to deal activity by PE giants in 2024 after a muted 2023.
While market conditions presented unique opportunities, prudence cannot be abandoned. Transitioning to a recession-resistant operating model through cost discipline and cash flow visibility will complement broader growth goals.
Operational resilience has entered boardroom conversations with renewed vigor after global shocks. In M&A filters and due diligence focus areas, stakeholders will increasingly feature the evaluation of continuity readiness and flexibility. Corporations must balance growth ambitions with prudent risk mitigation as they shape long-term investment rationale. Steady operating momentum notwithstanding volatility will dictate deal decisions.
Responsible growth now underpins enterprise longevity. Investors, regulators, and consumers alike are applying greater scrutiny to environmental sustainability, transparent governance, and social equity. Integrating these tenets within corporate strategy and M&A avenues is no longer optional but necessary to align with stakeholder expectations.
M&A directly contributes to this by directing capital towards well-governed businesses with ethical climate impact initiatives, fair labor practices, and community upliftment efforts. Wirecard's accounting scandal and Adidas' supply chain issues underscore why ESG-led due diligence will gain further ground in 2024.
Despite rising geopolitical friction, cross-border transactions are integral to growth blueprints within an interconnected business ecosystem. However global M&A integration remains vulnerable to cultural nuances without organizational dexterity across borders.
This demands proactive efforts to foster international mobile leadership talent. Teams adept at navigating regional complexities and bridging cultural gaps are essential for smoothing post-merger synergies across geographies. Global talent strategies must feed into overall M&A game plans to realize the full value-creation potential.
As economic green shoots emerge, corporations and investors seem to be gearing up for a vibrant M&A market. However, pursuing transformational deals in 2024 warrants strategy recalibration to address new complexities.
From ESG to cross-cultural dexterity and digital capabilities, leaders need to align M&A pursuits with the evolved landscape. The foundations for success rely on financial prudence, operational resilience, talent bench strength, and sustainable growth commitment. For those who embrace this integrated approach, 2024 may unlock promising new avenues to advance their ambitions.
To harness these M&A Trends early on, our experts are tracking global signals shaping deal flows to help SPs upgrade skills, technologies and partnerships vital for the next wave of consolidation. Get in touch with our consultants by completing the form below.