Citizens Financial Group, which has banks in Michigan, released its 2024 mergers and acquisition outlook survey, which states there should be optimism around the environment for dealmaking this year.
This conclusion is based on 400 interviews with U.S. middle-market companies and private equity firms. The new survey also stated that this optimism is underpinned by solid expectations for the U.S. economy and a pop in enthusiasm, especially among buyers.
The survey also uncovered what Citizen concludes are notable trends related to interest in artificial intelligence (AI) assets, international dealmaking, and the upcoming U.S. election.
Citizens states mid-market firms are the most optimistic they have been since 2020, with 46 percent expecting a strong mergers and acquisition market in 2024. PE firms are even more positive.
More than half (52 percent) see strength in the current mergers and acquisition market, up from just 38 percent last year. Further, 46 percent of PE firms expect higher deal volumes in 2024, compared to just 19 percent that expect deal flow to decrease.
“A sense of normalcy is returning to the mergers and acquisition environment,” says Jason Wallace, head of mergers and acquisition advisory for Citizens. “Companies across sectors are looking at their economic prospects and seeing opportunities. There is still caution, but that positive economic backdrop will continue to bring activity back to the market.”
Fewer mid-market companies cite operating factors such as commodity prices, interest rates, and labor markets as headwinds for 2024 than did so in 2023, and the average economic forecast is significantly more optimistic than it was last year.
Forty-six percent of mid-market companies and 50 percent of private equity firms expect U.S. economic conditions to improve in 2024. Among those who expect an improving economy, 68 percent are likely to engage in merger and acquisition activity this year.
As economic conditions improve, Citizens expects more assets are expected to come to market, contributing to palpable buyer enthusiasm. Of the PE firms who see higher deal flow in 2024, 79 percent expect to buy more than they did in 2023, while only 21 percent expect to sell more. Among mid-market firms, the pool of potential buyers also expanded for the second year in a row.
“The disruptions to mergers and acquisitions in ’22 and ’23 have led to some imbalances, for instance the sheer amount of private equity capital on the sidelines,” says Gavin Slader, head of mergers and acquisitions at Citizens JMP Securities. “We are now seeing excitement from buyers, which could be just what the markets need to find balance again.”
In addition to upbeat expectations for the U.S. economy in the year ahead, the survey revealed several unexpected factors that could catalyze dealmaking in 2024. These include:
- Private equity firms look ready to shop, and AI is on the wish list.Of the private equity firms that see higher deal flow in 2024, eight in 10 say they expect to buy more than they did in 2023 and a quarter are looking for AI assets to add to their portfolio.
- International prospects are back on the table. After four years of declining expectations, buyer and seller interest in foreign deal partners rebounded in 2024. Among mid-market companies, 51 percent of sellers and 44 percent of buyers say they would consider international deals. Private equity firms’ interest in international investment opportunities increased year-over-year to 55 percent from 37 percent.
- The 2024 U.S. election could be a driver for mergers and acquisitions.Uncertainty regarding the outcome of the upcoming U.S. election could support dealmaking in the first half of the year. Forty-one percent of mid-market companies say the pending election makes them more likely to pursue mergers and acquisitions in 2024, while just 25 percent say it makes them less likely to pursue a deal.
The survey was conducted among U.S.-based middle-market businesses ($50 million to $1 billion in revenue), as well as private equity firms (fund size less than $1.5 billion) that are active in the acquisition and sale of U.S.-based companies in the same revenue range. Core business sectors included Citizens’ industry specialties of aerospace, defense, and government services; business services; consumer; gaming, lodging and commercial real estate; healthcare; industrials; technology, media, and telecommunications; and transportation and logistics, as well as other industries.
Business executives at 277 middle-market firms and 123 private equity firms who are directly involved in decision-making related to mergers and acquisitions (owners/partners, CEOs, presidents and other C-level executives and directors) completed a phone or web-based survey between November and December 2023.
For more information on this year’s Citizens Middle Market M&A Outlook, visit here. To register for a Jan. 25 webinar on the report, visit here.
