Valuation in Mergers and Acquisitions: Top 5 Trends of M&A in 2024 That You Should Not Miss
In the fast-paced realm of finance, where change is constant, Mergers and Acquisitions (M&A) present new challenges and opportunities. As 2024 dawns, it becomes increasingly crucial for people to stay abreast of the latest trends shaping valuation in mergers and acquisitions that can make or break a business deal.
So, what trends is the M&A industry seeing?
The future of the M&A industry in 2024 is witnessing a growing focus on AI-driven deals, a preference for small-mid transactions, an uptick in creative partnering, continued dominance of private equity, and a strategic pursuit of value.
Let's read about them in detail:
Top 5 Trends Shaping Valuation in Mergers and Acquisitions in 2024
In 2024, we might witness a rise in corporate acquisition activities that will influence valuation for mergers and acquisitions soon. The S&P 500 Index concluded the year at levels not reached since January 2022.
This trend is coupled with robust corporate balance sheets, improvements in financing markets, and a noticeable increase in CEO confidence as reported by Morgan Stanley Investment Banking. It's worth noting that CEO confidence tends to be closely linked with mergers and acquisitions (M&A) activity.
CEOs are expressing their anticipation of elevated growth in both revenue and profitability for 2024 as compared to the previous year, 2023.
As deal activity stabilizes and grows, understanding the emerging trends becomes paramount. So, let us take a deep look at these movements.
Here are the top trends influencing M&A:
Trend 1: Over 70% of M&A dealmakers expect to acquire companies with AI capabilities.
In 2024, a notable transformation is taking place in the investment landscape, as a significant shift towards artificial intelligence (AI) is influencing M&A dynamics.
Companies are redirecting their focus and allocating resources to AI-centric businesses, anticipating a potential boon for improving M&A processes and value creation.
The rise of generative AI is prompting companies from various sectors to prioritize deals that empower them to integrate technological capabilities, positioning themselves at the forefront of the AI revolution.
Trend 2: A shift to small to midsize M&A deals
The high-interest rate environment has sparked a distinct trend in M&A towards smaller deals in 2024– It is observed that large deals (valued over $1 billion) have seen a consistent decline in volume since 2020.
Dealmakers are increasingly focusing on smaller mid-market transactions, which are easier to execute, less risky to finance, and offer a unique and strategic fit within an acquirer’s portfolio.
Trend 3: Cross-border M&A deals are gaining popularity for growth-focused companies
In response to the challenges posed by a higher cost of capital and regulatory complexities, companies are exploring alternative partnering models like joint ventures and strategic alliances to pool resources, share risks, and navigate the evolving M&A landscape collectively.
Trend 4: Dominance of private equity in 2024
As the valuation gap between buyers and sellers narrows, private equity (PE) is predicted to dominate the M&A market throughout 2024.
PE firms armed with substantial dry powder are likely to capitalize on the favorable conditions, targeting attractive assets and driving a recovery in deal flow.
The M&A landscape is expected to see a substantial uptick in private equity-backed transactions across various sectors.
Trend 5: Value-driven dealmaking
Dealmaking in 2024 is becoming increasingly complex and competitive, leading to a shift in focus towards strategies that enhance value creation.
Traditional approaches are facing challenges in delivering a competitive edge, prompting a reevaluation of tactics to identify 'best-fit' deals.
With macroeconomic uncertainty and regulatory challenges in the backdrop, success in 2024 hinges on the ability to align deals with transformative value drivers.
For instance, companies are focusing on robust due diligence and ESG integration to improve the odds of success.
What is the Future of M&A in India?
The future of M&A activity in India looks bright, driven by the country's growing economy, increasing foreign investment, and a favorable regulatory environment. Sectors such as banking, insurance, telecommunications, e-commerce, technology, healthcare, and renewable energy are expected to witness continued M&A activity.
If you want to know more, this is what the scope of mergers and acquisitions in India looks like in 2024:
1. The Indian government's commitment to liberalizing regulations stands out as a pivotal force shaping M&A.
2. The government's proactive approach includes regulatory reforms, exemplified by the establishment of the Competition Commission of India (CCI). This regulatory body plays a crucial role in overseeing competition, ensuring fair practices, and preventing anti-competitive behavior.
3. Simultaneously, India has experienced a notable surge in cross-border M&A activities.
4. Foreign companies are increasingly eyeing India as an attractive investment destination.
5. Initiatives like Make in India and Start-up India further encourage foreign investment, fostering a conducive environment for cross-border acquisitions.
However, the M&A landscape in India is not without its challenges.
Here are a few challenges that you need to know about M&A in India:
1. Regulatory Hurdles
M&A transactions are subject to an intricate framework of laws and regulations. Obtaining approvals from authorities such as CCI, Reserve Bank of India (RBI), and the Securities and Exchange Board of India (SEBI) can be a complex and time-consuming process.
2. Cultural Differences
The diversity of India's cultural fabric poses integration challenges for companies involved in M&A. Managing and aligning employees and operations from various cultural backgrounds and regions requires a nuanced approach.
3. Corporate Governance Evolution
As corporate governance practices in India continue to evolve, companies embarking on M&A activities face the challenge of aligning stakeholder interests, ensuring transparency, and adapting to rapidly changing regulatory landscapes.
4. Business Valuation Complexities
Accurate business valuations play a pivotal role in the success of mergers and acquisitions. From determining the structure of the deal to influencing the financing aspects, valuations are the bedrock upon which successful M&A deals are made.
Valuing companies in India is a nuanced process, marked by challenges such as the lack of reliable data, variations in accounting standards, and differences in market conditions. Successful M&A transactions demand meticulous due diligence.
5. Tax Implications
M&A transactions in India carry significant tax implications, including capital gains tax, stamp duty, and transfer pricing. A comprehensive understanding and effective management of these implications are critical for the success of the transaction.
Despite these challenges, India remains an attractive destination for M&A activity.
Looking ahead, the future of M&A activity in India appears promising. Companies that embrace careful planning and execution stand to create significant value and strategic advantages in this dynamic market.
Stay On Top of the M&A Trends in 2024
Amid macroeconomic uncertainty and regulatory challenges, the M&A outlook for 2024 remains cautiously optimistic.
Technology-driven processes, industry convergence, ESG considerations, and global expansion will redefine how deals are made. The companies that embrace these trends, stay agile, and leverage accurate business valuations will be well-positioned to navigate the evolving M&A landscape for growth and profits.
Are you wondering how to make the right choices?
Connect with Experts at RNC.
By connecting with experienced business valuation services that understand the nuances of these trends, businesses can create winning exit strategies and ensure success in the ever-evolving M&A landscape.
So, what are you waiting for? Book an appointment today! And happy dealmaking!