Global M&A Update Q3-24
According to the recent report by Pitchbook on the global M&A activity, the resurgence in mergers and acquisitions that began in the final quarter of 2023 is now unmistakable.
As the final quarter of 2024 comes to a close, the global mergers and acquisitions market has surged by 27.6% in deal value and 13.3% in the number of deals compared to the same period last year.
While this strong performance may slow as comparisons shift to the unusually robust final quarter of 2023, the growth is impressive, nonetheless.
Corporate-driven mergers and acquisitions spearheaded the recovery, but private equity remained cautious, initially due to elevated borrowing costs. This dynamic began to shift by the second quarter of 2024, and by the third quarter, private equity firms had fully re-engaged. The numbers speak volumes: year-to-date private equity buyout volumes have risen 24% in value and 10.4% in deal count compared to 2023.
Such a recovery was widely anticipated. Historically, the mergers and acquisitions market has rebounded following two consecutive years of decline, as seen after downturns in 2001-2002 and 2007-2008. However, the recent slump of 2022-2023, marked by a 34.7% fall in market activity, was far less severe than the 60% to 70% peak-to-trough declines seen in those earlier crises. This relatively modest decline set the stage for a measured, rather than meteoric, comeback.
Now that central banks are synchronising their rate-cutting efforts, the mergers and acquisitions market could gain further momentum. The scale and duration of these cuts remain uncertain, but they are likely to amplify the reductions already delivered by the lending market, providing an additional boost to deal volumes into 2025. However, this optimism is tempered by the risks of a hard landing for major economies or an escalation in geopolitical tensions. These uncertainties may also explain why valuations for mergers and acquisitions have firmed only slightly, remaining 20% to 25% below their 2021 peaks, even as public equity valuations have surged.
Cross-border activity between North America and Europe has shown a moderate bias towards Europe. North American acquirers have invested $37.5 billion in European deals so far in 2024, comparable to 2023 but far below the $116.1 billion peak in 2022. This trend has been supported by the strength of the U.S. dollar relative to the euro and pound sterling, making European targets more affordable. Lower purchase price multiples in Europe have further enhanced its appeal to U.S. investors, though the flow of capital has slowed as the U.S. economic outlook has brightened relative to other regions.
Valuation multiples for mergers and acquisitions have remained relatively stable. In North America and Europe, the median multiple of enterprise value to EBITDA for deals in 2024 has settled at 9.0 times, slightly down from earlier highs. But this metric cuts across all deal sizes – and does not necessarily translate into the low to mid-cap SME space here in the UK.
In contrast, valuations for publicly traded companies have skyrocketed. On the S&P 500 index, earnings multiples have returned to their 2021 peak of 15.6 times, while revenue multiples are now only 10% below their highs. This divergence has created a near-historic gap between public and private valuations, raising questions about whether the private market will eventually catch up….
Such a gap cannot persist indefinitely. Historically, periods of divergence between public and private markets have been followed by a realignment, often led by sharp corrections or rallies in one market. With public equity markets broadening their rally to include smaller companies, there is growing anticipation that private company valuations could follow suit.
If and when this happens, it could catalyse a new wave of deal-making, propelling private company multiples higher and further fuelling the mergers and acquisitions recovery. For now, the mergers and acquisitions market sits at an intriguing juncture: bolstered by falling borrowing costs and a revived appetite for deal-making, yet constrained by cautious valuations. Whether private markets will rise to meet the buoyant public markets remains to be seen, but the conditions for a sustained resurgence appear firmly in place.
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Tags: Global, M&A report, M&A Update, PitchBook, Q3-24
