The Deals Market in 2024: our predictions for the year ahead

In the second of our series, Roger Esler from Dow Schofield Watts corporate finance team in Yorkshire & the North East gives his forecasts for the deals market in 2024. 

The finger of caution is out of the dam.

At this time last year, spiralling inflation and interest rates and the impact of the Truss budget had made shareholders hesitant to initiate deal processes. However, after a quiet, pensive summer, the finger of caution was pulled out of the dam. The M&A stories now filling the newswires reflect the sharp rise in activity in the second half of last year. Given the duration of deal processes, we expect to see a high volume of completions throughout the first half of 2024.

Buyers’ appetite is recovering.

The prospect of an autumn General Election and possible tax changes (notably CGT), together with falling interest rates and the amount of undeployed private equity and venture capital, will all drive deal activity in 2024. The peaks on the inflation and interest rates charts will soon look like a spike in the rear-view mirror rather than the norm, and as stock markets recover, corporate risk appetite will increase. Strategic trade buyers are already doing their research and often making unsolicited approaches to target companies. We are optimistic for 2024 and expect to see increased deal activity across a wide range of sectors.

Tech-enabled businesses in vogue.

Tech and tech-enabled services and high-growth companies remain in vogue with trade buyers and investors. ESG criteria are very evident in most deals, and the circular economy will have an increasing share of the deal market. However, there is enough breadth in the buyer and funder landscape to get most deals away, providing that target businesses are resilient.

The consumer market remains a weak spot.

One area that is hard to call is discretionary consumer spending. Until we see the full effect of interest rate hikes and the shape of any potential recession, the consumer market is difficult to predict, so retail and leisure sectors are likely to see selectivity and consequently suppressed deal volumes until later in the cycle.

The days of 0% interest are over.

While interest rates look to have now peaked and will fall, they will not go all the way back to near zero, rather Central Banks will favour 3-3.5% base rates, providing them with more control over markets and economies. Therefore, debt has been repriced for the longer term, which will impact deal structures, particularly with respect to the debt and equity mix in buy-outs and the use of deferred consideration in trade deals.

… but the banks are back.

The mainstream banks will take back some market share from alternative lenders in levered deals but will remain relatively risk averse. However, deal structures will evolve, and we are unlikely to see any major change in the overall shape or population of what has become a very diverse and price-elastic debt market.

Don’t run out of time.

Properly managed deal processes take time and generally take longer and become more diligent in a more uncertain economic climate. It is common for buyers and funders to request top-up due diligence to evaluate current trading performance fully. Vendors will, therefore, benefit from very thorough preparation and appraisal of their options. Owners trying to get deals completed ahead of the General Election, on their terms and with HMRC clearances, should beware of leaving the initiation of a deal process too late.

Roger Esler

Roger Esler, Partner

For the first in the series of predictions, read Gregg’s article here.