Middle Market Dealmaker | Moving Through the Market: 2024 M&A Trends

Aug 2024

As H2 2024 ended, M&A market dynamics showed increasing deal volumes despite the growing difficulty in finding quality assets. As a result, the higher-quality deals are over-subscribed, in terms of interest. Private equity is conducting thorough diligence and bidding on fewer deals due to uncertain market conditions.

Max Golembo, Vice President in Lincoln’s Financial Sponsors Group, wrote, “PE is beginning to see cracks in company performance across the board. When examin­ing their portfolios, they are identifying negative trends from both a demand perspective and input cost, which leads them to be even more skeptical when reviewing new opportu­nities. This trend overall is preventing deals from coming to market.”

Although deal volumes are up, fewer deals are closing due to macroeconomic uncertainty.

“Despite these challenges, there remains a cautious opti­mism, with anticipation building for a resurgence in deal activity as we move into the latter half of 2024 and look toward 2025,” Max added.

According to the Lincoln Private Market Index, enterprise values rose in Q1 2024 compared to Q4 2023 across the business services, consumer, healthcare, industrials and technology, media and telecom (TMT) sectors, each showing distinct trends.

In business services, the utility and infrastructure services subsector is poised for growth, driven by aging infrastructure, sustainability and decarbonization priorities and tighter regulations, increasing demand for upgrades.

Following a strong 2021, consumer M&A activity decreased due to declining consumer confidence and spending, influenced by high inflation, interest rates and global geopolitical events. Despite challenges, there is optimism for an M&A revival amid valuation gaps and deal delays.

While healthcare company performance has been steady, it’s unclear if valuation multiples will drop due to recent scrutiny, possibly reducing future EVs. Advisors are adopting creative strategies, such as giving select buyers early access to management during the preparatory phase, to generate interest and ensure market receptivity.

The industrials sector saw reduced revenue and EBITDA growth from last year. Inflation-driven rising input costs remain a challenge, with companies striving to adjust customer pricing accordingly. Despite the uncertainty, Lincoln notes businesses improving operational efficiency, fostering sustainable growth and leveraging technological advancements—an encouraging trend.

TMT M&A activity is slowly recovering, with private tech company valuations supported by rising public tech stock values. However, IPO exits are limited to the largest firms, making smaller TMT companies attractive for private equity take-privates. Despite near-record levels of PE dry powder, Q1 M&A volume remained steady from Q4 2023, indicating buyer caution, with a focus on growth, profitability and companies meeting the “Rule of 40+.”

“While challenges persist, the strategic nuances across sec­tors and burgeoning overall deal volumes hint at a richly complex yet promising horizon for M&A during the second half of 2024 and into 2025,” Max wrote.

View additional insights in the original article.