Buoyed by expectations of falling interest rates and fading recession concerns, an overwhelming percentage of merger and acquisition professionals expect deal activity to increase over the next six months, according to Grant Thornton’s new M&A Pulse Survey.
Eighty-one percent (81%) of M&A professionals said they expect deal volume to increase or significantly increase over the next six months compared with the previous six months. Just 4% of the 238 M&A professionals surveyed, including investment bankers, private equity investors, M&A attorneys and in-house corporate development team members, expect deal volume to decrease, indicating expectations that a two-year stagnation in deals has reached its bottom.
The number of North American M&A deals declined from a record-high of 20,413 in 2021 to an estimated 16,391 last year, according to Pitchbook statistics, but a generally positive outlook on the U.S. economy is fueling predictions of improvement. Two-thirds (67%) of respondents said they are optimistic about the U.S. economy, citing their anticipation of stable or lower interest rates, technology innovations fueling growth and stabilized or reduced inflation that will encourage consumer spending.
High interest rates clearly had a profound effect on deal activity last year, as three-fourths of respondents said they executed fewer deals over the past 12 months because of rate increases. But the Federal Reserve has signaled that interest rate cuts are likely later this year, and 68% of M&A survey respondents expect rates to decrease over the next six months. Eighty-one percent of the respondents who expect rates to decrease say lower rates will lead to them executing more deals.
Although unexpectedly high U.S. inflation data from January dealt a jolt of pessimism into global markets, economic indicators have been largely favorable for expansion in the last several months, and private equity firms have lots of cash that they need to invest soon — or they’ll face having to return funds to their investors. This could drive an increase in transaction volume as PE leaders seek to avoid returning unspent funds.
The survey’s deal volume predictions match the observations that Grant Thornton Transaction Advisory professionals have noticed in their work.
Perhaps the most positive sign for deals is this: Many M&A leaders are backing their predictions by hiring talent in the expectation that they have more work now — or they’ll have it soon. Almost half (47%) plan to increase their team size over the next six months, and just 3% expect to reduce their team size. “If these M&A leaders are investing in professionals, that really backs the fact that they expect growth,” said Grant Thornton Transaction Advisory Managing Director Max Mitchell. “They’re hiring ahead of it, or while it’s happening.”
