At first glance, deal data for the first quarter of 2024 suggests a significant rebound in mergers and acquisitions after a year Bain refers to as a one where buyers and sellers couldn’t agree on valuations and strategic deal multiples sank to their lowest level in 15 years.

According to Barclays, year-to-date global volumes for the first two months of this year were up by two-thirds over 2023 – driven by the natural resources and technology sectors – while S&P Global Market Intelligence’s latest report states that the total value of first quarter global M&A deals was up 18.5% on the same period last year.

GlobalData was even more bullish, suggesting that deal value in the first three months of 2024 was up 38% year-on-year. LSEG valued the deals completed globally at almost US$800bn over this period.

But of course this does not mean that no mergers were completed last year. For example, in February 2023 Advent International and Wilbur-Ellis concluded an agreement to combine their life sciences and specialty chemicals solutions businesses Caldic and Connell into a single business with combined sales of around €3bn.

Wilbur-Ellis Treasurer, Tamara Anthony explains that the rationale for divesting Connell was that although it was already profitable it could perform even better in combination with a larger player. “This allowed us to benefit from having ownership in the Asian market while focusing our energy and resources on being a North America agricultural and nutrition business,” she says.

One of the key tasks was the divestiture of Connell as one of the borrowers and guarantors in the company’s credit facility, which required the consent of the lender group.

“We had to develop the financial models of what the business would look like with Connell carved out, making sure that we could meet our financial metrics going forward,” says Anthony. “There were also some commingle business activities where we had to set up new companies which required significant legal and tax planning to efficiently spin-off Connell and continue core business operations.”

All this work took over a year to complete. From a treasury perspective change of control provisions in Connell’s credit and other agreements had to be addressed and liquidity sources managed. Anthony worked closely with her counterparts at Caldic and Connell to ensure all exposures were covered at the new business.

Having accumulated considerable experience in managing acquisitions in her previous roles at Cisco, Lam Research Corporation and Avaya, Anthony says the ability to have the right people and advisors at the table to help understand the key issues and how to resolve them is vital.

“There are always unique challenges relating to taxation, legal and regulatory,” she says. “Where there are dependencies, you need to be able to work collaboratively and that is where third-party advisors who do this regularly become very valuable partners.”

Current market data is not uniformly positive either. GlobalData refers to a fall of 13% in deal volume year-on-year in Q124 with all regions recording a drop in deal volume from the previous quarter, while LSEG observes that mid-market deals (US$500m or smaller) were down by a fifth in value and a third in number compared to Q123.

“A focus on technology – particularly AI – will continue to build and provide impetus for mid-market deals and bolt-on acquisitions that help boost overall activity levels as strategic and financial buyers take advantage of better-priced opportunities for growth,” says Jana Mercereau, Head of Corporate M&A consulting Great Britain at WTW, who expects the energy sector to see M&A activity as companies look to catch up with their net zero goals and transition into the renewable energy space.

With a higher cost of capital and greater regulatory scrutiny further complicating the M&A landscape, we expect joint ventures, strategic alliances and minority investments to feature through 2024.

Jana Mercereau, Head of Corporate M&A consulting Great Britain, WTW

“With a higher cost of capital and greater regulatory scrutiny further complicating the M&A landscape, we expect joint ventures, strategic alliances and minority investments to feature through 2024 as companies respond to market disruption by sharing and mitigating risk,” she adds.

In terms of factors that increase the chance of a successful transaction, Mercereau references the ability to manage talent risks in a tight labour market “which if left unchecked can quickly undermine deal value.”

IPO pipelines are well filled with over 300 companies in North America and over 100 in Europe considering listing – but in 2025 rather than 2024 as markets need to stabilise even further.

That is the view of Jens Kengelbach, Senior Partner and Managing Director at Boston Consulting Group and global leader of the firm’s M&A practice, who expects 2024 to be a transitional year despite the abundant dry powder of financial investors and the need for transformation across many industries.

“The need for continued digitisation across industries means activity in the technology sector will most likely be higher,” he says. “Secondly, the energy transition and decarbonisation of the global economy means energy companies and related sectors will streamline their portfolios and invest in carbon-free technologies through transactions. Thirdly, the increasing focus on the circular economy is driving deals in industries such as consumer products, fashion and materials.”

Signs of normalisation, such as more stable interest rates, decreasing inflation and less volatile markets, have made it easier to establish valuation expectations. But while vendors and buyers are becoming more positive about M&A, deal processes are likely to take longer due to the need for enhanced diligence to thoroughly assess all perceived risks and benefits.

“Private equity houses are increasingly facing pressures from rising debt costs and investor expectations for returns, complicating efforts to raise new funds,” says Akshay Singh, Managing Director in the transactions services practice at FTI Consulting. “Some firms have found temporary relief by opting to refinance and extend leveraged loans, hoping for a market recovery.”

Singh notes that sectors such as TMT, healthcare (including pharma) and energy are already experiencing strong activity, while consumer and retail remain quiet. “The drive to remain competitive through emerging technologies – along with other trends – is likely to result in high M&A activity in the tech and related sectors as companies seek to transform their offerings, reduce costs and enter new markets,” he adds.

In 2015, solar tracker and software solutions provider Nextracker was acquired by manufacturing company Flex. At the beginning of this year Flex announced that it had completed the spin-off of all of its remaining interests in Nextracker to its shareholders.

This process required Nextracker to build out a treasury function from scratch with a hard deadline as Flex retained the existing treasury department following the separation.

“Our team was quite lean at the outset,” explains Nextracker Assistant Treasurer, Ilkim Saracel. “Initially, we only had a single treasurer (myself) on our internal finance team so over the next five months we hired four additional personnel from overseas and one from the US.”

The treasury team was given nine months to get the new treasury operation up and running, but allowing for holidays the effective working timescale was seven months.

“Mapping out duties, regions and limitations was important to determine the right size of treasury and ensure that there was a contingency plan in place,” says Saracel. “Compounding our lean team structure was the critical process of vetting and selecting the right partners to support our technology needs and banking relationships.”

Another major obstacle was the fragmented and decentralised nature of how treasury processes had been handled previously. The team discovered inefficiencies whereby stakeholders across various countries all weighed in on treasury decisions and activities such as FX trading.

“The sheer magnitude of revamping and implementing entirely new treasury systems, policies, workflows and personnel responsibilities in just a few short months cannot be overstated,” says Saracel. “Seemingly small setbacks or delays risked derailing our aggressive timeline.”

The risk of delay should not be underestimated. McKinsey research suggests that almost one-third of the largest global acquisitions by deal size experienced delays attributable to factors beyond their control over the last two years – a figure that has doubled since 2020.

The main causes of these delays included increasingly complex integration due to more cross-border transactions, obstacles to securing shareholder approval, and greater scrutiny by regulators extending the time needed to advance from announcement to approval.

“Historically, most M&A transactions fail to create the promised value for their stakeholders,” says Konosoang Asare-Bediako, Senior Investment Banker for Mergers and Acquisitions at Absa Corporate and Investment Banking. “This systemic failure can be attributed mainly to a lack of strategy and the acquirer paying too much for the target. M&A must happen with the right target at the right price to deliver stakeholder value.”

Saracel says her team learned some critical lessons along the way, such as that establishing a cross-functional steering committee to lead the treasury transformation was vital for maintaining momentum.

“Breaking the work into smaller pieces and continuously re-evaluating allowed us to adapt quickly,” she adds. “The steering committee had to set hard deadlines and ultimatums to keep decision-making on track.

The sheer magnitude of revamping and implementing entirely new treasury systems, policies, workflows and personnel responsibilities in just a few short months cannot be overstated.

Ilkim Saracel, Assistant Treasurer, Nextracker

Most importantly, we had to make coordinating across all internal teams and external partners an ongoing priority.”

Looking ahead, FTI Consulting expects deal activity in all sectors to increase over the next three to six months as a result of the significant amount of private equity dry powder needing to be invested and a convergence of buyer/seller valuation expectations.

Barclays’ global M&A team note that corporates are leading the way in the early stages of the M&A rebound as they see a strategic need to transact and are likely to continue to press their short term advantage.

The bank also acknowledges that private equity firms are under pressure from limited partners to return capital before they commit to new funds, although improving debt capital market conditions will present increased opportunities to monetise assets.

GlobalData has a more subdued take, observing that though the prospect of rate cuts in certain markets and a generally improving growth outlook could see an increase in activity, mega deals will continue to face hurdles – especially in the US where antitrust concerns have been a focus of regulators.

Ongoing challenges such as weak global economic growth, geopolitical instability and uncertainty surrounding this year’s US presidential election will continue to impact deal making suggests Mercereau.

“At the same time, recession fears are fading and predictions for a rebound in M&A completions are backed by the recent sharp rise in IPO activity,” she says.

While there are signs of an upcoming increase in deal activity, economic conditions are still challenging, with high inflation and interest rates coupled with subdued consumer spending and elevated debt levels, resulting in increased interest costs.

Moreover, the geopolitical landscape remains uncertain and upcoming elections will have an impact on investment activity.

“Despite these challenges, corporates and private equity firms still have the option to pursue alternative financing avenues in response to the current high interest rate environment,” concludes Singh. “This includes private credit and bespoke equity structures.”