As we look back on 2023, macroeconomic uncertainty, pressure on financial markets, and rising rates all contributed to a lackluster M&A environment in the first half of the year. Although total volumes were down nearly 20% YoY, average quarterly volumes progressively improved marking a shift toward recovery.

As we look to 2024, the markets have signaled a paradigm shift and a new normal should emerge. Equity markets rallied in Q4 and should broaden after being led by a narrow cohort in 2023. We expect stabilization to continue over the year as there is greater clarity around inflation, interest rate cuts, and key elections impacting major world economies. Resilient business models will continue to gather keen interest, but we suspect that the lofty valuation expectations of sellers anchored on 2021 highs will likely reset after two years of normalized valuation multiples. Still, financial investors, corporate buyers, and private lenders have ample capital. Global private equity alone has a record breaking $2.7T of dry powder heading into 2024 which needs to be deployed.

We believe several of the themes we witnessed in 2023 will persist in 2024:

Resilient business models will be highly sought after. Consumer behavior has evolved continuously over the last three years with purchases oscillating between goods and experiences. Furthermore, companies have experienced greater inflation with less ability to pass price increases on to the consumer. The confluence of inflation and buying habits has challenged acquirors in underwriting a sustainable performance level. Business models that are stickier, with more predictable revenues will continue to garner premium valuation

Acquirors will continue to focus on unit and customer-level data. Sellers should be prepared to furnish and answer more granular information than they have before around business performance at a unit or customer-level as prospective acquirors try to ascertain “new normal” performance.

Tuck-in acquisitions will continue to be prominent. Given market uncertainty, private equity firms have less conviction in new platform investments and are doubling down on existing ones. We expect this theme to continue as the cost of capital remains relatively high and risk tolerance evolves.

Elongated diligence periods. Prospective acquirors will continue to lengthen diligence processes to assess financial performance against projections and re-trade on valuation. Now, more than ever, it is important to engage an advisor to run a tight M&A process to optimize the outcome.

As you look to navigate complexities within your own business, we at DCA welcome the opportunity to discuss where we can help you find value.

Mergers & Acquisitions

What we do:
  • Strategic planning
  • Buyside M&A
  • Sellside M&A
Industries we cover:
  • Agribusiness
  • Business & consumer services
  • Consumer products
  • Engineering & Construction
  • Food & Beverage
  • Industrials
  • Retail
  • Transportation & Logistics

DCA: 2024 Market Outlook

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