Global merger and acquisition (M&A) activity has continued to demonstrate resilience, with the total deal value exceeding $1 trillion in the first half of 2024, even as the number of transactions has dropped. Meanwhile, initial public offerings (IPOs) have experienced a slowdown, reflecting broader market uncertainties.

The global M&A landscape has shown a remarkable capacity to adapt in the face of economic challenges. According to a report by S&P Global, the value of M&A deals rose by 11.7% year-on-year, reaching an impressive $1.22 trillion in the first half of 2024. This increase occurred despite a 12.9% decline in the number of transactions, which totaled 19,415 during this period.

Resilience Amid Economic Headwinds

The upward trajectory in M&A value can be attributed to several key factors, including a shift in the types of deals being pursued and the strategic priorities of companies navigating a complex global economic environment. The world economy has been grappling with persistent inflation, fluctuating interest rates, and geopolitical tensions, all of which have created a challenging backdrop for deal-making.

M&A activity has yet to fully rebound from the slowdown that began in 2022, which was largely triggered by a global rate-hiking cycle initiated by central banks in response to soaring inflation. The rapid increase in interest rates led to a higher cost of capital, making it more expensive for companies to finance acquisitions. As a result, many potential deals were put on hold or scaled back.

However, despite these challenges, there is a noticeable willingness among dealmakers to engage in large transactions. This is particularly evident in sectors where consolidation is seen as a critical strategy for growth and survival. Industries such as technology, healthcare, and energy have been at the forefront of M&A activity, driven by the need to enhance scale, acquire new capabilities, and adapt to rapidly changing market dynamics.

Regional Highlights: Europe Shines

One of the most significant regional highlights in the M&A landscape during the first half of 2024 was the robust performance in Europe. The continent saw a substantial boost in M&A activity, with the total value of announced deals increasing by 65.4% quarter-on-quarter and 25.4% year-on-year in the second quarter of 2024, reaching $182.87 billion.

This surge in European M&A activity can be linked to several factors, including the stabilization of the political landscape in key markets, particularly in the aftermath of Brexit. The United Kingdom, in particular, has witnessed a revival in deal-making as businesses and investors have gained greater clarity on the post-Brexit regulatory environment. Additionally, the European Union’s focus on promoting green energy and digital transformation has spurred investment in related sectors, further fueling M&A activity.

Notably, the telecommunications and technology sectors have been hotbeds for deal-making in Europe, with companies seeking to consolidate their positions in an increasingly competitive market. For example, the acquisition of a leading European telecommunications firm by a global tech giant is one of the high-profile deals that have driven the region’s M&A growth.

Global IPO Activity Declines

In contrast to the buoyant M&A market, global IPO activity experienced a slowdown in the first half of 2024. The number of IPOs worldwide fell by 9% year-on-year, with 616 listings recorded during this period, compared to 674 in H1 2023 and 819 in H1 2022. This decline reflects broader market uncertainties and investor caution amid a volatile economic environment.

Several factors have contributed to the decline in IPO activity. The ongoing uncertainty surrounding interest rates and inflation has made it more challenging for companies to achieve the valuations they desire when going public. Additionally, heightened geopolitical risks, particularly in regions such as Eastern Europe and Asia, have dampened investor appetite for new listings.

Despite the overall decline in IPO activity, there were still some notable success stories. A handful of large transactions served as a bright spot for the IPO market in the second quarter of 2024. These included the public offerings of several high-growth companies in the technology and biotech sectors, which attracted strong investor interest due to their innovative business models and potential for future growth.

Sectoral Insights: Technology and Healthcare Lead the Charge

The technology and healthcare sectors have been standout performers in both the M&A and IPO markets during the first half of 2024. In the technology sector, companies are increasingly turning to M&A as a means of acquiring new technologies, expanding their customer base, and staying ahead of the competition. The rise of artificial intelligence (AI), cybersecurity concerns, and the ongoing digital transformation across industries have all contributed to a surge in tech-related M&A activity.

One of the most significant tech deals of the year was the acquisition of a leading AI startup by a major global tech company. This deal, valued at over $15 billion, underscores the growing importance of AI in shaping the future of various industries, from finance to healthcare. The acquiring company is expected to leverage the AI capabilities of the startup to enhance its existing product offerings and gain a competitive edge in the market.

In the healthcare sector, the ongoing impact of the COVID-19 pandemic has accelerated the pace of M&A activity as companies seek to strengthen their positions in a rapidly evolving landscape. The demand for innovative healthcare solutions, such as telemedicine, digital health platforms, and advanced pharmaceuticals, has driven consolidation in the sector. Moreover, the aging global population and the increasing prevalence of chronic diseases have heightened the need for healthcare companies to scale up and expand their reach.

Looking Ahead: Optimism for M&A and IPOs in 2025

Looking ahead, there is a cautious optimism surrounding the prospects for M&A and IPO activity as we move into the second half of 2024 and beyond. According to Joe Mantone, lead author of the S&P Global Market Intelligence report, clarity around the political landscape and a sustained rate-cutting cycle will be key factors in creating a more favorable environment for deal-making and public offerings.

Central banks in several major economies have already signaled a potential shift towards more accommodative monetary policies as inflationary pressures begin to ease. If this trend continues, it could lead to a lower cost of capital, making it more attractive for companies to pursue acquisitions and go public.

In addition, the ongoing focus on sustainability and ESG (Environmental, Social, and Governance) considerations is expected to play a significant role in shaping the M&A and IPO landscape in the coming years. Companies that can demonstrate a strong commitment to ESG principles are likely to attract greater interest from investors, particularly in sectors such as renewable energy, clean technology, and sustainable finance.

Conclusion: A Dynamic M&A Landscape

In conclusion, the first half of 2024 has been a testament to the resilience and adaptability of the global M&A market. While the number of transactions has declined, the overall value of deals has surged, driven by strategic considerations and the pursuit of long-term growth opportunities. The decline in IPO activity, on the other hand, reflects the broader challenges facing companies in a volatile economic environment.

As we move forward, the M&A and IPO markets are likely to remain dynamic, influenced by a complex interplay of economic, political, and technological factors. Companies that can navigate these challenges and seize the opportunities presented by a rapidly changing global landscape will be well-positioned to thrive in the years ahead.

Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

9th August, 2024