PitchBook noted in a report that corporate buyers are maintaining an advantage in the upcoming M&A recovery.
PitchBook noted some key takeaways in its latest research report:
- PE-backed M&A activity had been firmly taking up more of the global M&A market over the past 10 years, but the gap between PE-led and corporate-led M&A activity diverged again during the recent economic slowdown to skew toward a greater share of corporate-led activity.
- PE dry powder is on a downward trend, while corporate cash reserves appear to remain flat to up, which gives an advantage to corporate strategics in maintaining greater buying power at the margin.
- Lowered PE exit activity and slowing fundraising trends further constrain PE sponsors’ relative buying power.
The research report shared by PitchBook further revealed that the global M&A market is entering a “recovery” period after enduring a down cycle for the past two years.
Since the beginning of 2022, tightening monetary policy and higher interest rates across the world have discouraged “dealmaking as market participants struggled with price dislocation and increased cost of capital.”
By the end of 2023, the M&A market notched its “second weakest year in a decade, suffering a 34.7% decline from the $4.7 billion of deal value achieved in 2021.”
As is the case after consecutive annual declines—M&A activity appears to have hit a bottom and is on its way back up.
PitchBook further noted in its research study that three quarters through the year, global M&A activity has now charged ahead by “13.2% in deal count and 26.8% in deal value YoY and is tracking 11% to 18% ahead of 2023 levels on an annualized basis.”
The research report from PitchBook explained that the M&A market can be divided into the following: corporate-led activity and PE-led activity.
PitchBook also mentioned that corporate acquirers had been demonstrating greater resilience during the past two down years of M&A activity, “while PE deals lagged due to high borrowing costs.”
As of Q3 2024, PE buyers appear to be back in, with “YTD estimated buyout
volumes having grown by 24.0% in value and 10.4% in count from 2023.”
While the recent interest-rate cut and uptick in LBO activity may seem like precursors to a “resounding resurgence” of PE-led M&A activity, the shrinking supply of dry powder is “likely to act as a brake on the upturn in PE deal flow.”
The researchers at PitchBook pointed out that PE dry powder is on a downward trend, while corporate cash reserves appear to remain “flat to up, which suggests corporate strategics will maintain greater buying power at the margin and take a greater share of M&A activity in the near term.”
The PitchBook team also examined various factors that have impacted the buying power of different types of acquirers and the “advantages” that corporates will continue to hold in the upcoming global M&A recovery.