Signs of Revival in M&A Activity: Optimism in the Election Year

As the world adapts to changing economic landscapes, the mergers and acquisitions (M&A) sector is beginning to show promising signs of recovery. Following a period of stagnation in 2023, dealmakers gathered at the Tulane Corporate Law Institute conference in New Orleans have expressed optimism for a resurgence in M&A activities. This anticipated rebound is fueled by several key factors, including expected Federal Reserve rate cuts, a slow but steady decline in inflation, solid corporate earnings, and a robust stock market performance.

Scott Barshay, the corporate department chair at Paul, Weiss, Rifkind, Wharton & Garrison LLP, shared a positive outlook, suggesting that the market is on the cusp of a significant upturn that could sustain over time. This sentiment is supported by Dealogic data, revealing a 55 percent surge in global M&A volumes in the early months of 2024, reaching $601.79 billion, compared to the same period the previous year. Notably, the number of transactions exceeding $10 billion has tripled, with 10 major deals already signed, including Synopsys’s $35-billion acquisition of Ansys and Capital One’s $35.3 billion all-stock deal for Discover Financial.

Despite this resurgence, private equity dealmaking remains subdued, primarily due to elevated financing costs that have hampered the feasibility of larger deals. Additionally, regulatory scrutiny continues to extend the timeline for deal completions, particularly for larger transactions that attract more attention from antitrust regulators. Nonetheless, smaller deals are expected to see a rise, facing less regulatory resistance.

The M&A landscape is also being shaped by the upcoming U.S. presidential election in November. Lawyers and bankers are strategically preparing for deals that might encounter heightened regulatory scrutiny, anticipating a temporary slowdown in dealmaking around the election period until policy directions become clearer.

A notable trend is the resurgence of deals backed by private equity, with a 22.5 percent increase in volumes so far this year, driven by the expectation of more affordable debt financing as interest rates are predicted to drop. This shift is expected to energize sponsor-backed deals, particularly in the latter half of the year.

Moreover, shareholder activism is poised to play a significant role in reviving the M&A sector. The launch of new activist funds and the adoption of activist strategies by traditional investment funds are expected to stimulate dealmaking. This includes urging companies to undertake strategic reviews or advocating for management changes to unlock value.

With private equity firms sitting on substantial unutilized capital, the M&A market is at a turning point, ready to embrace the opportunities presented by the evolving economic and political environment.