In the report 'Top M&A trends in 2024', consultancy McKinsey looks back and ahead.
‘M&A dealmakers have had a wild ride’, McKinsey partners Mieke Van Oostende (Brussels) and Jake Henry (Chicago) begin the new report ‘Top M&A trends in 2024: Blueprint for success in the next wave of deals.’
They are of course referring to the pandemic-induced crisis in 2020 to the record-breaking recovery in 2021, followed by the steep decline in deals and deal values in 2022 and 2023. The authors speak of M&A as a 'masterclass in volatility'.
For 2024, the dealmakers they spoke to for the report are largely optimistic. ‘CEOs across industries tell us that mergers and acquisitions are a more important strategic lever than ever’, say the McKinsey experts.
They continue: 'Organic growth – which never compares well with the most effective M&A strategies – pales even further when significant strategic shifts are required and companies have to adapt quickly.' The authors refer, among other things, to the technological revolution that is underway and to the sustainability and climate transition.
Companies that best master this adaptability through M&A are called programmatic acquirers by McKinsey. These are therefore not companies that occasionally take over when an opportunity presents itself, but companies that are continuously engaged in acquisitions and, very importantly, are equally engaged in divestments.
‘Remarkably, programmatic dealmakers achieved the highest returns with the most deals’, writes the renowned consultancy firm. ‘Seventy percent performed better than colleagues who closed fewer deals.’
With this insight in mind, McKinsey concludes the report with the following advice to strategic parties looking to capitalize on the likely upturn in the acquisition market in 2024:
1). Re-evaluate M&A themes and update strategy, invest in capabilities and assets that will effectively evolve the portfolio, and consider divestitures as actively as acquisitions.
2). Shift M&A themes to mitigate increased geopolitical risks - for example, by emphasizing localization rather than geographic expansion, targeting sectors with stronger market outlooks, investing in vertical integration, and strengthening supply chain resiliency.
3). Establish a higher bar for value creation to offset higher costs of capital, and think broadly about different kinds of synergies - not just cost or revenue-bound but also capex; not only combinational, but also transformational synergies.
4). Pursue partnerships and alternative deal structures - such as joint ventures, alliances, and public market buyouts - to offset the reduced availability of debt financing.
5). Use alternative structures to reduce transaction risks, such as earn-outs.
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