One of the pressing questions for dealmakers is, will M&A bounce back next year? While few expected to see the heady highs of 2021 this year in EMEA, there was a persistent optimism that 2023 would produce some good numbers. Unfortunately, that hasn’t happened: at Q3, the region saw deal volumes and values significantly decline both qoq and yoy (see Deal Drivers: EMEA Q3 2023).

What does this mean for 2024? Will there be a turnaround? If so, when? And what will drive activity? Michael Carr, Sabrina Fox, Raj Karia, and Merlin Piscitelli recently met with the FT’s Ivan Levingston to discuss the challenges and trends that will shape M&A in EMEA in 2024.

Optimism abounds
The optimism from this year hasn’t abated. If anything, the belief that EMEA will see a rebound in M&A in 2024 seems more solid than ever.

“Fundamentally, I think people see a nice, steady recovery next year from what we've had over the last 15 months,” says Karia. “We're definitely seeing that in the sense that the pipeline that we're building is very much for a very busy second quarter, and the third quarter of next year.”

Datasite, which has facilitated over 100,000 M&A transactions on its platform, has seen an uptick in new projects started in the last three months in EMEA, which are expected to close in the next six to nine months.

Piscitelli says, “You see a really record number of projects happening in the last couple of months, which does lead to Q3 being extremely active, and actually closing projects and announcing deals.” 

So, why is the market finally ready for more?

Carr explains: “It feels like we've had almost 25 years of history in the past 40 to 45 months or so. And it's been very, very difficult for people to understand where the new market equilibrium is. But you are starting to see the impacts of disinflation starting to come in, and the potential knock-on easing in monetary policy.”

Indeed, inflation has broadly stabilized in EMEA and elsewhere. Which means valuations are easier. Which in turn makes people more comfortable with doing deals.

“People are still just getting to the point of adjusting to the interest rate rises that we've seen this year,” says Karia. “But I think we're now very much seeing interest rates peaking and now people are pushing ahead with the deals and interest rates trajectory is understood and people very much see the trajectory as downwards next year. So that's really positive for the deal market.” 

Fox stresses that the impact of resetting expectations shouldn’t be underestimated: “People feel like they can finally take a view now. And that obviously makes it a lot easier to get deals done. There's been a bit of resettling around refinancings, lots of amend and extends, a lot more battening down of the hatches, because everybody's been preparing for a recession for a few years now. And now there's finally space to think about what will happen over the coming year, which is why it doesn't surprise me that these deals have started to launch and that we'll start to see some activity.” 

Trends and opportunities
The one thing that seems to be becoming clear is that no one sector looks to dominate next year for dealmaking.

Of course, some of the consistent players over the past year will likely remain active.

Piscitelli says: “We're still seeing TMT as a very attractive place to deploy capital and the leading sector that is driving the deal volumes on our platform. Second is industrials, transport, and defense, which offer a little bit more stability and are probably a little less risky. But that's been the second leading sector in deals on our platform. And then third, which is always kind of a staple, is life sciences and healthcare, which never goes away no matter the economic cycle.”

But some other areas could be ripe for the picking.

“Europe by dint of geography is obviously physically closer to a lot of the kind of geopolitical events that have happened,” reminds Carr. “And that has a knock-on effect on the energy security of the local economy. I'm noticing a lot of effort being put into the green transition, and more broadly in the infrastructure space as an area that we've seen hold up very, very well in 2023.”

Karia agrees: “Energy transition is a macro issue really, that everyone affected needs to address. And so there's a lot of deal activity there. Whether it's a wind farm, a solar plant, or nuclear, it’s all becoming quite significant now in that energy mix in terms of renewables and all the things that go to make energy transition work.”

The AI impact
And what about the topic on the tip of everyone’s tongue: AI?

Fox believes that we’re only just starting to see the impact of AI on the market. “It’s something that I get really excited about because I think there's a lot of potential for opportunity,” she says. “But obviously, you need to be guarding against risks, particularly governance risks.”

Piscitelli says he is already seeing change in M&A due to AI: “I think AI is making people look at efficiencies, productivity, and they can introduce these tools incrementally to ultimately get a more efficient outcome, as versus waking up one day to have AI do the entire deal for you. I just don't think we're anywhere near that. But the reality is that a change is starting to occur within the M&A space with AI.” 

Carr agrees. “I think where we've seen AI and digital technology more broadly have an impact on dealmaking is in the sourcing of potential targets. We're also seeing the diligence scopes becoming more and more focused in that area. So, despite the market downturn, one area of our business that we see growing year over year, even within 2023, is around cybersecurity and the diligence and understanding what kind of technology risks you're picking up as part of the transaction. So yes, it is having an impact, especially at the beginning and the end of the stages of the deal. And the compounding pace of innovation is one of the standout reasons for optimism, as we look forward to 2024.”

To hear more from the experts, including their thoughts on the types of deals expected to dominate in 2024, watch the replay.

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