According to Gartner, there has been a significant shift in the merger and acquisition (M&A) landscape, forecasted to continue throughout 2024.
The key trends include unlocking technology M&A opportunities in the face of macroeconomic uncertainty, employing artificial intelligence (AI) to enhance M&A procedures, acquiring AI-focused businesses, and navigating a complex regulatory environment.
Global M&A activity, currently experiencing a 50% decline from its record levels in 2021, is facing challenges from macroeconomic and regulatory factors. Despite this, "a renewed focus on technology, particularly AI, provides tailwinds for executives to reenter the M&A market in a big way next year," Mark Carroll, VP Analyst at Gartner indicates.
VP Team Manager at Gartner, Chris Ganly adds, "M&A remains a growth engine for most enterprises, so next year will see success increasingly depend on how executives pivot to handle these market trends. Delivering M&A success will mean positioning their enterprises for market leadership for many years to come."
One of the major trends Gartner highlights is the impact of macroeconomic ambiguity on opening up M&A opportunities. Amidst the flux of mixed positive and negative signals regarding inflation, recession, employment, the cost of capital, and business and consumer confidence, some startup tech firms may struggle to secure their next venture funding round, the analysts state.
Gartner suggests that these firms might seek alternative sources of capital, which may include being acquired by strategic buyers. In such a scenario, well-capitalised enterprises should consider acquiring smaller technology-focused businesses with lower valuations than would usually be available in more robust economic conditions.
Another significant trend Gartner identifies is the role of AI in improving M&A processes. Deploying AI within M&A processes can enhance their speed, efficiency, and overall performance. Practical applications, such as contract analytics, can significantly improve activities associated with the negotiation of letters of intent, contract due diligence, definitive agreements, and contract renewals and integration.
Furthermore, Gartner sees a growing emphasis on acquiring AI-based businesses as part of a firm's larger AI strategy. Based on the 2023 Gartner CEO and Senior Business Executive Survey, AI was ranked as the most disruptive technology impacting industries, indicating 2024 will likely witness a surge in M&A of AI-based businesses. Acquisition of AI-based companies should therefore be prioritised in business strategies for 2024.
The final key trend identified by Gartner is the increased regulatory scrutiny likely to impact larger M&A transactions. Scrutiny is tipped to increase, particularly concerning anti-competition and national security aspects, potentially hindering larger M&A deals throughout 2024.
Yet, Ganly commented, "Sharper regulatory scrutiny, which can have a chilling effect on large M&A transactions, can also create a competitive opportunity for enterprises best positioned to complete a higher volume of smaller deals. For those focused on larger deals, it's important to take a more proactive approach with regulators next year."