Welcome back to the second and concluding part of the LAVA team’s annual insights into mergers and acquisitions.
After sharing our reflections on the previous year, we now look forward, sharing our expert predictions for the M&A landscape in 2024.
A period of opportunity will arise amidst election and conflict uncertainties
– Hamish Martin, Partner
“We appear to be entering a period of relative certainty which offers a window of opportunity for deal-doers to put their capital to work. We are expecting UK and US elections later this year which may impact this, as could the risk of the conflict in Palestine evolving into a wider conflict across the Middle East.
For the best assets, valuations will continue to be robust which can agitate the value gap that is often evident in the lower quality assets.
We expect caution in the due diligence process to continue with deals taking time to complete as acquirers work on building the confidence of the internal decision-makers.”
Strategic moves require building trust and patience in 2024
– Simon Woodcock, Partner
“Pressure on management teams and custodians of investment vehicles are under serious pressure to put capital to work and make bold strategic moves in 2024.
Caution and thorough diligence will not disappear quickly, so patience and a higher degree of engagement and trust need to be built between buyers and sellers in order to complete deals.
More time invested in building trust at a human level is what it will take to unlock great deals for the next year.”
Reassessing buy and build strategies for strategic transaction rationale
– Millie Counsell, Executive
“For 2024, I think we’ll see many buyers take their buy and build strategy back to first principles and reassess what they are looking to achieve as opposed to doing large volumes of acquisitions, as was possible with past debt availability and cost.
As the strategic rationale behind each transaction is strengthened, I think this is where we will really see trade and PE-backed trade out-bid PE and drive activity and valuations in the market, or at the very least close the gap to PE valuations of past years.”
Corporate activity will be a key driver for M&A momentum
– Tom Rowe-Jones, Director
“It’s an interesting one, I’ve heard a lot of ‘things will get better in Q1/Q2 ‘24’ but whether that’s out of hope or a rational opinion based on the broader macroeconomic indicators is still to be confirmed! As I mentioned in the 2023 predictions, there is still a lot of capital available to deploy from private equity investors and so for a well-managed, robust and growing business with an ambitious management team, there will always be a list of suitors queuing up to invest or acquire.
I think corporate activity will continue to drive deal activity next year, both from PE-backed businesses looking for bolt-ons and larger corporates.
Value creation through operational and commercial synergies in markets they know not only provides limited downside but an opportunity to achieve exceptional returns.
One thing we have observed in the lower-mid market is larger businesses acquiring smaller organisations that have a particular capability, niche sector focus or technology they lack, but when applied to their operational and global sales infrastructure, can drive immediate growth and I expect that to be a key theme continuing into next year.”
Economic weakness will act as a catalyst for M&A resurgence
– Rob Telkman, Associate Director
“Slightly counterintuitively, the broader economic weakness may present a window for a resurgence in M&A during 2024. This could be driven by a change in central bank policy towards easy money and lower interest rates in an attempt to avoid a technical recession ahead of election season.
Whilst this approach might seem like merely kicking the can further down the road, it potentially offers a great opportunity for sellers to exit at valuations that, in many sectors, are still elevated.
In such an environment, expert advice is key for a swift and clean exit!
Expect an increase in M&A activities driven by unallocated capital in a changing landscape
– Loïc Bourdonnec, Associate Director
“Looking ahead to 2024, I anticipate a marked increase in M&A activities. The build-up of unallocated capital, amidst a backdrop of limited investment avenues, is poised to drive investors towards more proactive capital deployment, especially considering the potential political developments in the UK.
In an environment of ongoing flux, the emphasis on ensuring the feasibility of transactions will be even more critical.
This is particularly relevant for lower mid-market ventures and for businesses planning exits or aiming to secure their wealth.
Achieving success in the forthcoming year will call for a nuanced strategy that balances rigorous due diligence with the agility to adapt to the changing market landscape.”
Maintain a steady gaze through uncertainty: M&A’s upward movement in 2024
– Ivo Brett, Analyst
“The outlook among the UK M&A community appears to be positive; a relative movement away from an extended period of uncertainty and less volatility in the debt markets will begin to drive higher deal volumes in 2024.
While I would agree that we will see more deployment of the large amounts of dry powder within many private equity houses, particularly towards the creation of new platforms, I would hesitate to subscribe to a period of macro-stability.
A seemingly inevitable change in government, alongside ongoing conflicts around the globe, aren’t conditions conducive to lasting economic or political certainty. In light of this, the priority for businesses may remain on cost reduction, cash control, and, essentially for M&A, value creation.
I would expect similar levels of scrutiny in the deal process that has been seen in 2023, but favourable valuations to be reached as stronger strategic rationale is targeted.”
Delayed exits and sector consolidation to highlight a slow-growth economy
– Clare Stockdale, Associate Director
“Despite the increased political uncertainty in the UK and US as we head towards 2024, the usual wave of exits ahead of this has not been seen. This suggests that many investors may be waiting to assess the political landscape before making strategic decisions.
Driven by the spikes in deal volume throughout 2021 and H1 2022, we would expect to see increased transaction volume from H2 2024 as these PE-backed investments approach 3 years of ownership and exit strategies are plotted out.
As economic growth continues to be slow, we would anticipate further consolidation across key sectors as investors look towards acquisitions to drive growth, cost efficiencies, and multiple arbitrages.
Accounting, in particular, remains highly fragmented and so we would expect the wave of consolidations seen over the past year to continue into 2024 and potentially beyond.
As many investors have now acquired platforms, we would particularly expect to see consolidation at the lower end of the market. As investors start to eye-up an exit, we may start to see platforms merging in future years.”
If you’re looking to understand how your business can capitalise on the market’s upcoming trends or wish to have a confidential discussion about the M&A opportunities available to your business, don’t hesitate to get in touch with our team today.
