Macroeconomic tailwinds, which dealmakers had hoped for, did not happen as expected, says senior executive.

The global mergers and acquisitions (M&A) market is set to end the year with a “middling” overall deal value of US$3.5 trillion, indicated projections by Bain & Company. 

This figure is consistent with levels in the mid-2010s and is 15 per cent higher than last year, the management consultancy firm said in a report released on Thursday (Dec 12). It also expects the global M&A deal volume to climb 7 per cent on the year, reversing a two-year decline.

Ultimately, the macroeconomic tailwinds that M&A practitioners hoped for during the first 11 months of 2024 did not happen as expected. 

Bain’s M&A and divestitures practice executive vice-president Suzanne Kumar said: “Dealmakers didn’t see the positive momentum they hoped for on interest rates, seller willingness to exit, and regulatory scrutiny that would drive a full recovery this year.” 

However, Kumar highlights that the most effective dealmakers did two things well. For one, they adapted quickly to market realities by shifting from traditional approaches to embrace revenue and cost synergies. 

Second, they also honed their M&A capabilities as frequent acquirers by focusing on screening, negotiating and leveraging new tools – including generative artificial intelligence (AI) – to streamline the process. 

Across different deal categories, the narrative varies. Lower rates have revived some interest in private equity and venture capital; private equity’s deal value has increased 29 per cent on the year, and venture capital’s has risen 30 per cent on the year. 

The deal value for corporate M&As is on track to end the year 12 per cent higher than 2023, with steady growth across all regions.

Looking back on 2024, Bain highlighted several trends that affected dealmaking throughout the year. 

Bain’s survey of more than 300 M&A executives found that gaps in the valuation expectations between buyers and sellers were a primary drag on M&A activity. 

A key contributor was that strategic deal valuations have remained historically low – and well below public market valuations. 

“Rather than face substantial markdowns at exit, private equity and venture capital investors dug in with their portfolios. Private and public companies with the option to hold did too,” the management consultancy firm said. 

This meant less competition and a lack of urgency which caused deals to languish.

The regulatory environment also affected dealmaking, with nearly half (47 per cent) of dealmakers citing regulatory concerns that affected the types of deals their companies closed in 2024. 

Challenges and litigation lengthened deal-close timelines and affected close rates. Some companies spent more time screening and evaluating deals, while others put deals on hold to wait for election outcomes for more clarity on the future regulatory environment.

This created a “barbell effect” where companies favoured either small, under-the-radar deals or large deals with high value-creation potential, while giving less priority to mid-sized deals. 

Most deal activity came from deals valued at under US$1 billion; it accounted for 95 per cent of all activity and grew for the first time in four years. Meanwhile, mega deals valued at above US$5 billion supported total deal value. 

Persistently high interest rates also made strategic acquirers more selective about their deals, as they pursued those with more concrete value creation and were less willing to pay for long-term, top-line growth. 

“Most dramatically, (strategic acquirers) adjusted to the new M&A value equation by pursuing both revenue and cost synergies in tandem,” Bain said. 

Notably, there was a shift towards acquisitions which promised “clear, bankable synergies” within the first year. 

This spelt a reversal from the previous trend towards scope M&As, which aimed to accelerate top-line growth by entering or expanding into faster-growing market segments or bringing in new capabilities. 

Scale deals, that are intended to strengthen market leadership and lower costs through benefits of scale, accounted for 59 per cent of deal value in 2024 – their highest proportion since 2015. 

Early adopters who deployed generative AI in dealmaking for sourcing, screening and sharpening overall diligence, said that it helped them cut manual effort, reduce costs, as well as speed up timelines.

Bain found that one in five M&A practitioners used generative AI for their activities in 2024, up from 16 per cent in 2023. Moreover, an additional 16 per cent said that they expect to use it in the next 12 months.