Breakingviews: Backlogged M&A pipeline will burst in 2024

Investment bankers ordered back to the office in 2023 could just as easily have twiddled their thumbs at home. In 2024, however, they should be able to start accumulating frequent-flyer miles again, as a growing list of deals sketched on paper finally get put into action.

The slowdown in M&A activity has darkened the mood of usually chipper financial advisers. Even mega-mergers unveiled by oil giants Exxon Mobil and Chevron in the fourth quarter, worth a combined $113 billion, haven’t boosted spirits much. Globally, companies notched $2.6 trillion of deals by the end of November, putting volume on track for the lowest full-year total since 2014 and well below 2021’s $5.7 trillion peak.

It’s no wonder deal consiglieri have been uncharacteristically cautious. Jim Esposito, the co-head of global banking and markets at Goldman Sachs, recently told Reuters he expects M&A to be a “little bit less robust” over the medium term. Subdued CEO confidence levels back him up.

At a certain point, however, pressure simply squeezes too hard. In the 40 years LSEG has kept records, the value of mergers and acquisitions has never dropped three years in a row. Moreover, deal volume from 2014 to 2022 averaged 4.5% of worldwide listed equity value without ever dipping below 3%; in 2023, it was 2.4%. A reversion to the mean would yield some $4.7 trillion of deals.

More practically, with the U.S. Federal Reserve ending its cycle of rapidly raising interest rates, capital is easier to come by and its cost easier to assess. A coinciding recovery in public stock valuations makes equity a more valuable currency with which to shop. And dealmakers have had time to adjust to the new normal of aggressive trustbusting, both in terms of its legal limitations and the expense involved. Microsoft’s ability to overcome regulatory opposition to owning Activision Blizzard, for one, may embolden other hesitant acquirers to dust off shelved strategies.

This stability should help narrow the previously yawning gap in valuation perspectives held by sellers and buyers. An abundance of cash doesn’t hurt either. Members of the S&P 500 Index – excluding those in finance, utilities, property and transportation – were sitting on some $1.8 trillion of it, the same as at the end of 2021, according to S&P Dow Jones Indices. The clock is also ticking for buyout firms and their record $2.5 trillion of firepower.

There’s also some strategic urgency to spend. Governments pursuing decarbonization and supply-chain restructuring should ignite investor enthusiasm in those trending areas. Striking deals in 2024 will require extra courage and creativity, but there’s no shortage of inspiration.

(This is a Breakingviews prediction for 2024. To see more of our predictions, click here.)