2024: A Year of Global Expansion or Continued Devaluation?
The year 2023 posed significant challenges for many startups, particularly those experiencing rapid growth and backed by substantial venture capital investments. High interest rates, market volatility, and geopolitical turmoil led to a sharp decline in company valuations and made initial public offerings (IPOs) exceedingly challenging.
However, this environment also presented unique opportunities for financially robust companies. As we look ahead, could 2024 be the opportune moment for aggressive expansion through mergers and acquisitions (M&A)?
Let’s delve into the insights and predictions from industry experts on the potential trajectory for the upcoming year.
As the global mergers and acquisitions (M&A) landscape recovers from its turbulent journey through pandemic-induced volatility, record recoveries, and significant downturns, McKinsey & Company’s latest report, “Top M&A trends in 2024: Blueprint for success in the next wave of deals,” offers an insightful prognosis for the year ahead. After a challenging year in 2023, where global M&A activity declined by 16% to $3.1 trillion, the question loomed: “Is M&A dead?” McKinsey’s analysis firmly suggests otherwise, presenting a future ripe with opportunity for dealmakers prepared to navigate the evolving market dynamics.
The resilience of the M&A market is underscored by several key trends and strategies poised to shape its trajectory in 2024. Among them, the rise of artificial intelligence, sustainability concerns, and a tech-savvy consumer demographic herald M&A as an indispensable strategic tool for companies aiming to pivot swiftly in response to these shifts. Firms who are engaging in programmatic M&A—those executing multiple small to mid-sized deals consistently— show superior performance over those relying solely on organic growth or sporadic, large transactions. This strategic approach, characterized by active portfolio management and frequent divestitures, has historically generated higher total shareholder returns, a trend that promises to continue.
In contrast to the decline in private equity-driven deals in 2023, attributed to high capital costs and regulatory uncertainties, there lies a potential resurgence fueled by over $2 trillion in undeployed capital. This anticipates a shift in the market, with private equity players likely to re-enter the arena, drawn by the prospect of stabilizing conditions and attractive investment opportunities.
We see a cautiously optimistic macroeconomic landscape, with easing inflation rates and robust job growth contributing to a more favorable environment for dealmaking. Here are couples of successful large financing rounds in 2023 as preparation for potential 2024 IPOs: Northvolt (Nov 21, 2023 – $145.3 million), rubric (Jun 5, 2023 – $108.2 million), Sierra Space (Sep 26, 2023 – $290 million), Turo (Sep 22, 2023 – $67.5 million), Zipline Logistics (Apr 2023 – $330 million). However, geopolitical instability and unforeseen crises remain a concern, with a significant portion of threat to global economic growth.
Industry and regional analyses reveal divergent trajectories, with certain sectors giving way to energy and materials in terms of M&A activity. The Americas have maintained their lead in global deal value, despite a slight decline, while Europe and the Middle East, as well as the Asia Pacific region, faced sharper downturns, albeit with bright spots in select economies and sectors.
Looking forward, The IEC Group gives strategic recommendations for companies gearing up for the potential upswing in M&A activity. Emphasizing the need for agility, resources, and global expansion, it advises firms to reassess their M&A themes, pivot towards mitigating geopolitical risks, and explore creative deal structures and partnerships to navigate the higher cost of capital and the evolving market landscape effectively.
In conclusion, while the exact timing of a full-scale M&A market recovery remains uncertain, we strongly believe that 2024 could indeed mark the beginning of a bright new era for dealmakers. Armed with strategic insights and prepared to adapt to new market realities, companies can position themselves to capitalize on the opportunities that the next wave of deals will undoubtedly present.
The M&A landscape for software as a service (SaaS) continues as well to demonstrate resilience amidst broader macroeconomic impacts, maintaining a robust outlook particularly for high-quality companies. A significant portion of private equity investors and strategic buyers anticipate valuation multiples to rise in 2024, with strategic buyers especially optimistic.
This optimism is partly due to a noted decrease in the availability of high-quality assets on the market, underscoring the competitive nature of the SaaS M&A environment for companies that align with investor and buyer criteria. Key to achieving robust valuations are factors including revenue growth, revenue retention, and financial efficiency, with a marked disinterest in companies that are significantly cash flow negative. This highlights a shift away from the “growth at all costs” mentality towards a preference for SaaS businesses that exhibit both growth and profitability, a trend amplified by current economic uncertainties.
Healthcare, financial services, and government sectors are identified as the most dynamic verticals in the SaaS M&A landscape, driven by the indispensable nature of their services which offers resilience against economic downturns. Additionally, Human Resource Management and Cybersecurity are experiencing significant continuous growth, while Artificial Intelligence (AI) is capturing the spotlight with substantial awareness and investment. Looking ahead, the SaaS industry is on track to achieve unprecedented levels of deal volume, presenting a promising future for SaaS founders. This is attributed to robust demand and a competitive environment for high-quality assets, signaling an optimistic market outlook.
In summary, the SaaS M&A market is navigating through a period of heightened selectivity and competition, with a clear preference for companies that can demonstrate sustainable growth, operational efficiency, and relevance to essential industry verticals. For companies that meet these criteria, the future appears promising with the potential for high valuation multiples, despite the overall decrease in the number of high-quality companies available for acquisition.
Go To’s: Upon completing this article, take a moment to assess your company’s current strategic standing. Reflect on how you can align with the emerging market trends highlighted. Consider engaging in mergers and acquisitions as a pathway to growth, and seek personalized advice from industry experts and financial advisors to tailor your strategies for success in 2024.
